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by The Rt. Hon. 


With a Preface by 


36 Essex Street W.C. 

First published in 



I REGARD Mr. Johnston's book as of great public 
service. We cannot be too plainly reminded of 
the way in which the public is periodically fleeced 
by financial tricksters and swindlers ; because these 
highlights of capitalist enterprise are, after each 
exposure, quickly forgotten. It is remarkable how 
regularly during the past hundred years the story is 
repeated. Each decade sees a new variant, but the 
process isfces'sentially the same. Tens of thousands of 
small investors, and also some large ones, are persuaded 
by lies and misrepresentations to purchase shares in 
what is simply a swindle. Hundreds of thousands, 
if not millions, of pounds are pocketed by the swindlers 
and the crowd of accomplices and parasites who 
' in the ordinary course of business ' co-operate in 
what must not yet be termed fraud. Presently there 
is a collapse, and, more or less, exposure : occasionally 
one or more of the chief swindlers gets prosecuted 
and sentenced to prolonged imprisonment at the 
public cost. But there is no effective or prolonged 
publicity. All the influences c in the City ' combine 
to hush things up. Any angry talk is bad for business 
on the Stock Exchange. The banks fear the spread 
of panic and conceal their own losses. The news- 
papers are warned on behalf of influential *people 
that any financial scandal interferes with legitimate 
business, and especially with the advertising of c pro- 
moters.' And so the interest of the public in the latest 


financial swindle dies down. The figure of losses is 
concealed. Presently the crowd of small investors 
are ready to be robbed again, in some i?ew guise. 

Meanwhile, it should be noted, hundreds of little 
swindles are carried on to the detriment of the^ublic, 
without any overt criticism or public denunciation. 
How large is the proportion of rubbish among widely 
advertised articles, sometimes ' capitalized ' at a 
monstrous price extracted from the investing public, 
from patent medicines to cheap glow-lamps, no one 
has ventured to compute. I do not remember that 
any professional economist has taken the trouble to 
estimate the total * exchange value ' during any one 
year of the various kinds of ' illth ' that masquerade as 
' wealth.' 

Mr. Johnston's plain-spoken account of a dozen 
or so of the most spectacular of these swindles will, I 
fear, seem to some people almost indecent. To the 
honest and respectable banker, or the old-established 
stockbroker specializing in investment business, or 
the steady-going manufacturer producing a sound 
article, it will certainly seem in the highest degree 
unfair to class all sorts of swindling, along with their 
own upright service, as part of ' the capitalist system.' 
Their protest would secure more support were it not 
for one fact. It is just these honest and respectable 
business people who make possible the htishing-up 
of the various successive scandals. If they united 
to demand public investigation and effective publicity 
the public would not be able so quickly to forget, and 
the new variant that the swindlers are even now 
elaborating would have to be postponed. But there 
is a more serious civic offence of which the banks and 
the Stock Exchange and such bodies as the Federation 
of British Industries are habitually guilty. Whenever 


the Government, or some important members of 
Parliament, are at last moved to devise some legis- 
lative reform,, which would make the successive 
financial swindles more difficult or more dangerous 
to th&r perpetrators, there is only the faintest support 
from * the City.' Presently, indeed, memoranda 
begin to pour in, showing that the proposed new 
restrictions to prevent swindling, or the suggested 
additional requirement in the revelations of pro- 
moters' prospectuses, would c interfere with legitimate 
business. 5 The desired reforms are obstructed, 
whittled down and often prevented. That legitimate 
concern for their own profits, which the honest and 
respectable financiers are so prompt to manifest, 
actually keeps open the door for renewed swindles. 
It is even argued that the losses from such swindles are 
the price that has to be paid for industrial and financial 
freedom. It is a drawback that the price is not paid 
by those who get the profits of that freedom ! 

This attitude of the honest and respectable bankers, 
the old-established stockbroker doing investment 
business, and the steady-going manufacturer producing 
a sound article, is what justifies, and even compels, 
our inclusion of all the swindles, great and small, in 
the capitalist system for which the nation relies for 
nearly all its production and distribution of wealth. 
It would? indeed, be unfair to blame the bankers, the 
stockbrokers, and the manufacturers for causing the 
swindles. The proceedings of Hatry or Kreuger, 
Bottomley or Farrow, White or Loewenstein ; or tltose 
of the more shady of the issuers of foreign loans, or 
new amalgamations, are not actually caused > by the 
capitalist system. But I think we are warranted in 
concluding, from the history of the past hundred years, 
that they are what the logicians used to call ' insepar- 


able accidents 8 of such a system. And it is the honest 
bankers, the respectable stockbrokers, and steady- 
going manufacturers, who, whenever t the question of 
reform arises, in effect tell us that theje c accidents ' 
are * inseparable ' from their essential freecjdm to 
make profits. 

Mr. Johnston has useful sections on such improve- 
ments in the system as the effective nationalization of 
the Bank of England ; the development of municipal 
banks like that of Birmingham, established by so 
reckless a Socialist as the present Chancellor of the 
Exchequer ; the throwing open to wider utility of the 
Post Office Savings Bank ; and the planning and 
direction of a capital investment Board. These are 
all reforms that have received high expert support. 
I must refrain from doing more here than invite the 
reader's special attention to them. 



PREFACE ....... v 





IV. TRUCK TRICKS . . . . . .21 

V. THE VULTURES . . . . 27 










BOARD . . . . . .122 





GREAT BRITAIN . . . . 135 










THE GITY . . . . .180 


INDEX ... . ... 203 


Parts of the earlier chapters in this book were written 
for and first appeared in the columns of Reynolds and 
Forward. The Editors of these papers are thanked 
for permission to alter and reprint. 


* Within a few hours of a state of barter . . . the rash spirit 
of speculation.' HUSKISSON, President of the Board of Trade, 1826. 

IT was in the year 1825 that the newspapers 
first began to publish, with any regularity, a 
Money Article. That was when the first big Stock 
Exchange crisis had developed out of the mad finance 
speculations during the application of steam power 
to industry. 

The use of James Watt's great discovery of steam 
power in industrial processes was accompanied by 
a wild scramble in company-promoting in foolish 
and frequently bogus enterprises ; and while the 
capital savings of the nation were swept into the 
clutches of plausible crooks, a generation which ought 
to have benefited from the new powers in wealth 
production, was suddenly, and to the victims incom- 
prehensibly, engulfed in ruin, distress, and misery. 

In the year 1824, companies to the number of 156 
had been formed with an issued capital of 48,000,000 
to manufacture with steam power. By the beginning 
of 1825 these companies had increased in number 
to 624 with a capital of 379,000,000 ; the imports 
of raw cotton rose by 61,000,000 Ib. ; a company was 
formed with Lords Lansdowne and Liverpool as 
President and Vice-President respectively to spend 
1,000,000 on the cultivation of mulberry trees and 
the silk- worm in Great Britain and Ireland. Shares 


in South American concerns rose to fabulous heights ; 
the i o instalment of the 40 United Mexican 
share sold for 155, and the 70 instalment of the 
Real del Monte 400 share for 1350. Especially 
great was the London Stock Exchange credulity about 
Peru, where it was said silver was so plentiful that 
the meanest utensils were made of it. 

Then came the inevitable slump, and the total savings 
of hundreds of thousands of families disappeared. 

Of the 624 steam companies with the capital of 
-379,000,000 already referred to, only 283, with 
48,000,000 of the stock subscribed, survived on the 
stricken field. Seventy banking houses closed their 
doors, six of them in London ; and there was a run 
on the Bank of England to such an extent that, as 
Huskisson, the President of the Board of Trade, 
declared : c We were within a few hours of a state of 

Fortunately so the story goes at a desperate 
moment in the fortunes of the Bank of England, 
some one discovered 600,000 or 700,000 one pound 
notes lying in a box in the cellars, overlooked when 
the Bank had called in its small notes in the previous 
year. This timely and opportune discovery (whether 
of old notes, or notes hurriedly printed, who can tell ?) 
saved the situation ; the City Merchants passed resolu- 
tions of confidence ; the Bank of France" (how re- 
miniscent of the autumn of 1931 !) lent two millions 
in three months' bills ; and the Bank of England 
just, but only just, weathered the storm. 

Nevertheless, in February 1826, sixty banking 
firms*stopped payment, and the nation, in Canning's 
words, went through ' one of the most tremendous 
and searching convulsions ever experienced in any 
country ' ; thousands were ruined ; all the South 


American and Mexican investments disappeared, 
and not until the end of the year did ' confidence ' 
return again. 

One adventure of the 1825 speculation is worth a 
line in memoriam. It is of a churning company which 
actually sent out a group of Scots lassies as milkmaids 
to milk the cows and make butter in Buenos Aires. 
When they got there they found that the shops had 
already all the butter they could sell, and that the 
gauchos and the natives anyhow preferred oil. 

In this great crash of 1825-6, hundreds of thousands 
of humble folk were stripped of all they possessed, not 
because of speculation or gambling in which they 
themselves had participated, but because the bank 
directors to whom they had for safety entrusted their 
slender savings had rashly and madly adventured 
them in crazy and wild-cat hazards and follies in 
the search for profits. 

Not all the companies floated in these hectic days 
of 1824-5 were concerned with steam-power pro- 
duction. There was, for example, the London 
Genuine Snuff Company and the Economic Funeral 
Company, to say nothing of the Cemetery Company 
advertised in The Times as promoted to give * perfect 
security for the dead. 9 And the crash, when it came, 
disclosed a disturbing number of bankers, who had 
engaged in personal speculation with their depositors' 
money. There was, for example, the Fauntleroy 
case, where Henry Fauntleroy, the managing director 
of the banking house of Marsh Sibbald, Stracey *& 
Co., was proved guilty of forging signatures and 
stealing 170,000. The bank was smashed and 
so, alas ! were the confiding depositors. Fauntleroy 
was hanged outside Newgate Prison in November 


The banking house of Remington, Stephenson & 
Co. failed with liabilities of 508,000. Here the 
chairman was M.P. for Leominster, treasurer of 
Bart's Hospital, and (as later transpired) was a con- 
siderable performer at the gaming-tables witri the 
money of his depositors and clients. His personal 
share in the embezzlement was 200,000, and when 
detection became inevitable, he annexed another 
50,000, and bolted for Savannah ! 

Queen Elizabeth, we know, ran State lotteries ; 
the British Museum was partly built from the proceeds 
of a State Lottery in 1 753 ; and, until they were 
abolished altogether by Act of Parliament in the year 
1826, there were continual public lotteries of one kind 
or another where a citizen might take a gambler's 
throw with his money. But the public lottery must 
have been a safe gilt-edged investment compared with 
the private banking establishment of a century ago. 
The resources of the private banker were limited, and 
it only required the collapse of one or two of the 
company promoters he had financed to compel him 
to close his doors, and in so doing ruin his unfortunate 


* Every loan 

Is not merely a speculative hit, 
But seats a nation, or upsets a throne.' 

BYRON, Don Juan. 

THE second large-scale mania and panic of the 
century occurred in 1835, and was due to huge 
losses incurred by the banking houses of London in 
the financing of foreign loans. In the first quarter 
of the century our bankers had ventured abroad 
100,000,000 of borrowed money. The Rothschilds 
had pioneered the international loan idea loans to 
Prussia, Spain, Naples, the Argentine, Columbia, 
Guatemala, and large-scale dealings in Russian and 
Danish loans. Of this 100,000,000, no less a sum 
than 25,000,000 never received a dividend, and sank 
without trace, spurlos versenkt \ 

Of the balance the Argentine defaulted in 1833 ; 
and Columbia and Guatemala paid nothing for years ; 
the Report of the Council of Foreign Bondholders 
records the fact that Mexico had borrowed 3,200,000 
f v om the London Bank of B. A. Goldsmidt & Co. at 
5 per cent., in 1824 ; she has long since defaulted 
upon that loan, and we are not surprised to learn 
that the loan was so floated that Mexico had some 
apparent justification for defaulting, inasmuch as 
she only received 58 for every 100 of the debit she 



Mississippi . 
North Carolina 
South Carolina 

. 1,200,000 
. 1,400,000 
. 2,600,000 
. ^1,200,000 


There are eight States in the United States Con- 
federation, who between them borrowed 15,040,000 
from London in the good old days a century ago, and 
who have since been too proud to pay ekher principal 
or interest. These original borrowing? in these 
American defaults are : 


The Council of Foreign Bondholders in 1930 
asserted that the arrears of interest on the American 
defaulted loans had accumulated to the sum of 
52,339,200. If Mr. J. H. Thomas (with the Irish 
scalps on his belt) ever hears of the American repudia- 
tions there may yet be a war, economic or military, 
for recovery. 

En passant, we note that in 1832, the year of our 
great Reform Act, the financial houses in London 
were engaged in a filibustering war which has been 
completely crowded out from our school history 
books. It was the war of Dom Pedro, a gentleman 
who was financed by the money brokers of London 
and who was supplied with British officers and 
stores in an attempt to capture the throne of 
Portugal. * 

There was no pretence here of carrying the blessings 
o civilization, or Christianity, or colonization or the 
Pax Britannica, no fear of revenge or any of the usual 
reasons for war ; it was just a gamble for loot and 
plunder. Admiral Napier was placed in charge of 
Dom Pedro's fleet by the London money market, and 
when Napier seized Oporto, first a sum of 800,000, 
and subsequently a further 2,000,000 worth of 


Portuguese Bonds, were unloaded upon British 

Great Britain was not at war with Portugal, never- 
theless the Dom Pedro filibustering expedition was 
organised and equipped by London banking houses, 
the prime motive, says Mottram, 1 being ' the unloading 
of insufficiently secured paper upon the investing 
public. 5 

When Dom Pedro's predecessor and opponent, 
Dom Miguel, hurriedly left Portugal (with a pension 
of 1500 a year for life, which, to do him credit, he 
afterwards declined to accept) things looked merry 
for the London speculators. There was to be a golden 
harvest. But alas for human gratitude, the new 
Dom Pedro government actually imported Germans 
and Belgians and treated the British money-lenders 
shamefully ; in fact, they declined to pay either 
principal or interest upon the buccaneering costs 
of the London Money Market expedition, and for 
years certainly until 1856 the London Stock 
Exchange in disgust refused to allow any further 
Portuguese quotations upon their lists. 

The big Dom Pedro loan in London was for 
2,000,000, at 5 per cent., but since for each 100 
bond he only received 48, it is obvious that he was 
expected to pay over 10 per cent upon what he actually 
received, For later loans he had to promise to pay 
even more ruinous terms. But the Dom (as we have 
already shown) paid neither principal nor interest, 
and he actually levied a 15 per cent, import difty 
upon the equipment and clothes for his Stock Exchange 
financed English army of mercenaries. , 

So much for our old ally of the House of Braganza ! 

Among the other ramps to which we can trace the 
1 History of Financial Speculation, p. 179. 


second great panic and distress of the nineteenth 
century were the South American adventures of our 
financial aristocracy. 

A rebellion in Columbia, cynically described upon 
the prospectus as a War of Independence, was financed 
through Herring, Graham, & Powles in 1820 ; the 
terms of the loan were 2,000,000 at 10 per cent., 
but only 84 was given the Columbians for each 100 
of actual debt they incurred, and the London lenders, 
in addition, were to retain eighteen months' interest 
in advance. 

In 1824 the Columbian War of Independence was in 
full swing (during the war the insurgent leader Bolivar 
issued a decree, Guerra a muerta, death to any Spanish 
prisoners) and Messrs. Goldsmidt & Co. of London 
obliged by raising from British investors a further 
4,750,000 at 6 per cent,, for the insurgents against 
Spanish rule, but only 88 los. to be given for each 
100 nominally borrowed. 

By 1826 this loan also was in default. 

Over the exploitation of Honduras there have been 
frequent disputes between the money kings of New 
York and London ; operations for the investors of 
Britain being initiated by Messrs. Bischoffsheim & 
Goldsmidt, of London, and a lien obtained on railways, 
mahogany forests, and revenues of the State domain, 
as security for a 10 per cent, loan issued at 80. These 
Honduras loans, as we shall see later, 1 became the 
subject of a special public inquiry by a Select Com- 
mktee of Parliament. Honduras began defaulting 
upon her debts to London as early as 1827. 

Nicgjragua paid nothing on her debt to London from 
1827 to 1874, when she offered a composition of 14 
per 100 stock. Two English groups, however, held 

1 P. 34- 


on to liquor and tobacco monopolies in Nicaragua 
until 1910, when these monopolies were declared to be 
* unconstitutional * by the Nicaraguan Government. 

Brazil since t about 1825 might have been described 
as a Rothschild State. 

The chief financiers of the Argentine have been 
Baring Brothers, Murrietta & Co., Stern Brothers, and 
Erlangers. A 6 per cent. Argentine loan raised in 
London at 85 was in default in 1830. 

Paraguay gave a London finance house 8 per cent, 
bonds of 100, but got only 64 cash ; the British 
investor subscribing 80, but the finance house de- 
ducted i 6 for its trouble. This loan also was defaulted. 

A struggle over the coffee warrants in Guatemala 
between rival gangs of money-lenders in London and 
Berlin, each claiming priority in taxation of the 
Guatemalan farmer, caused much ill-feeling between 
Britain and Germany in the 'nineties, and contributed 
something to the ill-will which exploded in the Great 
War in 1914. 

Ecuador has had long periods of being unable or 
unwilling to pay tribute to the London money market. 

Greece was assisted by the London money-lenders 
with an ' Independence * loan in 1824. The amount 
was 800,000, but even the Encyclopaedia Britannica 
draws attention to the fact that after commission, etc., 
was deducted all that reached Greece was 280,000. 
The next loan to promote Greek * Independence ' was 
in February 1825, and the amount was 2,000,000 at 
5 per cent. But the Greeks only got 56 los. per iob*, 
and their loan was spent for them in the purchase of 
two frigates. Upon these amazing ramps Greeco paid 
nothing from 1827 to 1879, although the Rothschilds 
were on the scene between 1830 and 1840 with fresh 
loans secured upon the customs receipts of the country. 


And while upon the subject of these foreign in- 
vestments of British * savings 5 and ' thrift ' one must 
refer to Mr. H. N. Brailsford's inimitable picture, in 
his War of Steel and Gold, of the Turkish railway over 
which he once had the misfortune to travel. The 
foreign financiers who had secured the railway con- 
cession had also secured a guarantee from the Turkish 
Government of a fixed profit per mile of rails laid 
down ; they, therefore, instead of running their 
railway in a straight line from point to point, conceived 
the ingenious idea of running it zigzag, backwards and 
forwards, in order to double the mileage. Under 
such circumstances the railway could never pay ; but, 
no matter ; the foreign financiers had the right to 
seize the tithes of the Turkish peasants in any year in 
which there was a default. 

Two finance houses kept clear, or all but clear, of the 
hazardous ramps with British deposits in the South 
American insurrections of a century ago ; these two 
houses were the Barings and the Rothschilds. 

The grandson of a Lutheran pastor in Bremen had 
become the founder of the Baring Brothers firm in 
London, where he had collected a fortune of 
7,000,000 ; from him have descended the noble 
families of Northbrook and Ashburton. 

But of the story of the Rothschilds a little more is 
known ; we are told that Nathan Rothschild^ the third 
son of an old Frankfort banker, arrived in Manchester 
with 20,000 in his wallet, and without the ability 
t& speak a word of the English language ; at Man- 
chester he throve in cotton deals, and then moved to 
London . 

Napoleon had invaded Germany, and the Prince of 
Hesse-Cassel, at that time reputed to be the wealthiest 
man in Europe, had fled, but before his departure 


he had left 600,000 in the charge of Nathan Roths- 
child's father. The origin of this 600,000 and the 
remainder of the great Hesse-Cassel fortune has been 
traced to the ^patriotic practice of the Hesse-Cassel 
gentleman in selling his soldiers cheaply to the English 
Government, by whom they were used to fight against 
the American colonists and against the French in 
Spain. He sold his fellow-countrymen with the same 
concern as a farmer sells his cattle no less and no 
more. His father, who had been at the job before 
him, died in 1785 worth 56,000,000 thalers, or, say, 
8,000,000. His son continued to sell his subjects 
as cheap fodder for the English in their wars, and added 
greatly to the family wealth. And old Rothschild 
pere was the agent, or factor, for the investment of all 
this Hesse-Cassel money. As one reads the story of 
these cold-blooded traffickings in the conscript soldiery 
of Hesse-Cassel, one almost understands the Nazis of 

The 600,000 already referred to was sent on to 
Nathan Rothschild in London for security ; when he 
received the money he speculated with it ; he financed 
Wellington's Peninsular War at ' enormous profits ' 
profits declared by his contemporaries to be 150,000 
a year for eight years. His relatives in Paris mean- 
while financed the French, doubtless also at enormous 
profits, and presumably also with Hesse-Cassel money. 

By the year 1812, says Count Corti, in his story of 
the Rise of the House of Rothschild, Nathan was in 
' immediate touch with the private finances of the 
British Royal Family.' Two years later, in 1814, the 
Rothschilds were financing the return of the Bourbons 
to the throne of France, and after the fall of Napoleon 
at Waterloo they metaphorically had all the Govern- 
ments of Europe in their capacious pockets. 


Nathan had become a nationalized Britisher in 
1804 ; in 1815 he was created an Austrian nobleman ; 
he issued the British public loans of his period, always 
unloading them, of course, on the public at a higher 
price than he paid for them to the British Treasury. 
When he had sold the stock he was not content, but 
must needs juggle the market, depressing it with false 
rumours, then purchasing back the stock ; and then 
again disseminating good news and elevating the 
market, he would sell the stock once more, and reap 
another profit. 

He was not much given to boasting, old Nathan, but 
his 20,000 capital, he said, had become multiplied 
2500 times in the course of five years, and he is said 
to have nearly made 1,000,000 sterling out of early 
news of the result of Waterloo. He stuck to public 
debts mostly European and seldom ventured into 
joint stock speculations among the lesser jackals of 
the money market. 

Yet now and again he went into commerce, if he 
could get a monopoly, as, for instance, when in 1832 
he purchased both the Spanish and Austrian quick- 
silver mines, and doubled the cost of mercurial 
preparations to the sick and the suffering of all 

But despite all his millions, it is said of him that he 
never c paid his employees a farthing morethan was 
necessary for their bare subsistence or at least not 
one farthing more than they could compel him to pay.' * 
Ahd when he died, not a legacy to an employee, not 
a single charitable bequest ! 

Public curiosity was never satisfied about the extent 
of his fortune, and his executors were directed by his 
will to confine themselves to their administrative 
1 Martin, Stories of Banks and Bankers. 


duties and not to seek to pry into matters with which 
they had no legitimate concern. 

His son and successor, Lionel de Rothschild, 
financed no fe\yer than eighteen British Government 
Loans, French and Italian railways, and Disraeli's 
Suez Canal speculation, out of which last-mentioned 
deal, he, Rothschild, netted 100,000. Elected for 
the City of London to Parliament in 1 847, he could not 
take his seat because he refused to take the Parlia- 
mentary members* oath on the c true faith of a 
Christian,' and it was not until 1858 that the oath was 
amended and he could sit at Westminster. 

And it is rather a joke that Lionel de Rothschild 
lost his Parliamentary seat in 1874 because of his 
temerity in opposing Gladstone's proposal to abolish 
the income tax. Rothschild wanted the substitution 
of some fresh tax upon the wealthier classes to take the 
place of income tax. But his constituents in the City 
of London would have none of it, and so they parted 
company with their multi-millionaire banker repre- 


* What error in railway legislation is it, that has made possible 
such complicated chicaneries ? ' HERBERT SPENCER, * Railway 
Morals and Railway Policy,' Essays, vol. iii. 

TOWARDS the tail end of the foreign loans panic 
of 1835-6 there was a sudden spurt of extravagant 
speculation in the home market. Perhaps it was the 
reaction from foreign lending and the defalcations 
abroad that had turned the attention of the financial 
promoters to British industries again. But between 
January and November of the year 1836 there were 
no fewer than 42 new Joint Stock Banks floated in 
Britain to cope with new commercial ventures, and 
three-fourths of these Joint-Stock Banks issued their 
own notes, the total currency of the country being 
increased in one year by over 50 per cent., and we are 
told that * every newspaper teemed with prospects of 
commercial venture of the wildest kind.' l But the 
boomlet was short-lived. Soon there was a run upon 
these mushroom banks and another commercial crash, 
and thousands of families were ruined. Scarcely, 
however, had the reverberations of this crash passed, 
fere the money-lenders were again engaged in pouring 
what depositors' money they could lay their hands 
upon into railway development schemes, often of the 
most absurd and fantastic kind. Railway Company 
shares were grossly inflated in value ; projects worth 
1 The Annual Register for 1837. 


absolutely nothing were sold and resold at swollen 
prices during the next decade until 1847, when the 
whole edifice toppled over again, and in ten railway 
corporations alone the unfortunate shareholders lost 
no less than 78,000,000 sterling. 

The leading figure among the Railway Kings in 
the first half of last century was George Hudson, 
who operated upon our grandfathers and grand- 
mothers with the same sang froid and effrontery 
that Hatry and his like have operated upon this 

Hudson was born at Howsham, near York, in 1800. 
His father, a farmer, apprenticed him to a firm of York 
drapers, where he subsequently acquired a partnership. 
By the time he was thirty-seven years of age he was 
Lord Mayor of York. He became a pioneer of railway 
company promoting ; saw the advantages of amal- 
gamating smaller systems, and was appointed chair- 
man of the combination which in time developed into 
the Midland Railway Company. 

By the year 1844 he was popularly known as the 
c Railway King ' ; he had 1016 miles of railway under 
his supervision ; and when Mr. Gladstone introduced 
to Parliament a proposal to nationalize the railways, 
the opposition was led and organized by this plutocrat 
promoter from the north. He had reached nodding 
terms with the Prince Consort, and the aristocracy 
flocked after him for pickings ; he had become 
Tory M.P. for Sunderland, having defeated the 
Cobden-Bright party and their nominee, Colonel" 
Perronet Thompson ; and the London Times 
regarded his election as of such paramount import- 
ance that it ran a special train to London with the 

At the height of his appropriations he is said to have 


accumulated property worth 1,500,000, including a 
princely residence at the Albert Gate, London. By 
paying dividends, out of the shareholders' capital in 
concerns which before his control hacj paid nothing, 
he achieved considerable temporary popularity among 
the shareholders, and his unconscious victims in the 
Eastern Counties' concern actually got the length of 
proposing a national testimonial of thanksgiving to be 
expended upon a statue of the dividend-producer, 
whom, so they said, ' future generations would 
admire ' ! 

But this statue business was too much for Thomas 
Carlyle, and so excited his wrath and ridicule that he 
exploded in scathing, scorching terms in his Latter- 
Day Pamphlets. c This big, swollen gambler,' he wrote 
of Hudson, c has only produced scrip out of which 
profit could be made ' ; and he likened him to one of 
those American ' overgrown monsters of wealth . . . 
who have made money in dealing with cotton, dealing 
in bacon, jobbing scrip . . . glittering man moun- 
tains filled with gold and preciosities ; revered by the 
surrounding flunkies, 5 and so on. Carlyle loathed 
him and all his kind. 

Towards the end of 1847 came the inevitable collapse 
in railway finance. 

Borrowing reserves to pay dividends, paying divi- 
dends out of capital while the shareholder^ believed 
the dividends were corning from profit, issuing bogus 
shares and such-like trickery, could not go on for 
ever, and, when the inevitable exposure came, 
the swollen values of the British railways were 
punctured, and thousands of people were ruined. 

The various Committees of Investigation which 
were set up subsequently reported between them 
that, one way or another, Hudson owed the 


Companies over half a million pounds. His liabilities 
included : 

The Great North of England. (Money borrowed) . 11,292 
East and West Rising Shares .... 96,000 
Landowners' and Contractors' money due. (Cash 

drawn by Hudson, but accounts unpaid) . . 68,479 

North British Company ..... 62,267 
Iron rails. (Selling to his own company iron rails at a 

huge profit. He bought the iron rails at 6 los. 

and sold them to the railway company, of which 

he was Chairman, at i 2 per ton) . . . 66,203 

Sunderland Docks ..... 41,000 

Profit on Newcastle and Berwick Shares . . 149,704 

(On the amalgamation of the Newcastle and Berwick 
Railway Company with the Newcastle and North 
Shields Company he had secretly increased the author- 
ized issue of shares by 14,000 and had c made no entry 
of the fact in the account books ' ; the shares were at a 
premium, and upon that deal alone he had pocketed 
over 149,000.) 

Brandling Junction. (New shares which he voted to 

himself at 2 1 premium) .... 42,000 
Hull and Selby shares ..... 42,000 

The shock to the investing public of the exposure of 
the rascalities and rogueries of the Hudson type of 
railway promoter in 1847 was so serious that railway 
shares became unsaleable at any price. 

Singularly enough, when in 1847 Hudson's com- 
panies ceased to pay dividends, and when angry share- 
holders' associations proved against him fraudulent 
appropriation, bogus balance-sheets, and other mal- 
practices, he was not criminally prosecuted. 

Many years later, in 1865, he was indeed, sentenced 
to nine months' imprisonment in York Castle for con- 
tempt of the Court of Exchequer in not paying a large 


debt for which judgment had been given against him ; 
but for his wholesale and retail malfeasance among 
the railway stocks and shares he was never charged in 
a Court of law. 

The chairman of the Eastern Counties Railway 
Shareholders' Committee of Inquiry was a Quaker 
called Cash, and the following rather quaint dialogue 
took place between Cash and Hudson when the 
millionaire was being examined. It was at this in- 
quiry that Hudson was proved guilty of having paid 
dividends to the extent of 300,000 out of the capital 
of the Eastern Counties Company. 

Mr. Cash : ' George Hudson, wilt thou take a seat ? 
As thou hast the financial department of this company 
under thy especial control, thou art required to 
answer a few questions which the committee will put 
to thee. Didst thou ever after the accountant had 
made up the yearly accounts alter any of the figures ? ' 

Hudson (after hesitation) : * Well, I may perhaps 
have added a thousand or two to the next account. 5 

Cash : ' Didst thou ever add ten thousand pounds ? ' 

Hudson : ' Ten thousand ! That is a large sum.' 

Cash : ' It is a large sum, and that is the reason why 
I put the question to thee. Wilt thou give the com- 
mittee an answer, yea or nay ? ' 

Hudson : ' I cannot exactly say what may have been 
the largest sum I carried to the following account.' 

Cash : c Perhaps, George Hudson, thou couldst 
inform the Committee whether thou ever carried to 
the next account so large a sum as forty thousand 
pounds ? ' 

Hudson : ' Oh, I should think not so large a sum 
as that ! ' 

Cash : ' But art thou sure thou never didst . . . ? 
George Hudson, take the questions home with thee 


and send written answers to the Committee at thy 
earliest convenience.' 

Whether Hudson ever found it convenient to supply 
detailed particulars of his fraudulent balance-sheets 
I know not, but he seems to have treated all these 
angry victim shareholding Committees with the most 
profound contempt. 

Hudson was chairman, not only of the Eastern 
Counties, but also of the Midland, the York, Newcastle 
and Berwick, and the York and North Midland Com- 
panies, and from each he had borrowed the reserves 
to pay dividends and keep up the price of the stock in 
the market. Yet, albeit he was a large-scale rogue 
and reckless speculator with the savings of lesser folk, 
it must be said for him that he was a born business 
organizer, who succeeded (partly, it is true, by bribery 
and fraud) in linking up and amalgamating dozens of 
small competing railway lines into large units, and 
making effective national scale transport possible. 

There were, of course, other rogues and rascals 
besides Hudson responsible for the commercial de- 
pression and ruin of 1847. Indeed the whole business 
system seems to have been honeycombed with them, 
and the wreckage of their depredations was every- 
where. The Annual Register for September 1847 tells 
us that the failures of commercial houses were ' almost 
unexampled ' and the Government stocks fell by one 
and sometimes two per cent, in a single day ; railway 
shares * were, in fact, unsaleable.' 

In October 1847 the failures continued, including 
six banks ; Government Stocks fell to 79^, which 
meant a drop of one-fifth in the total capital value of 
gilt-edged investments ; the commercial credit of the 
country was * threatened with total destruction,' and 
the Prime Minister, Lord John Russell, sent a letter to 


the Governor of the Bank of England urging him to 
issue credits at 8 per cent., and promising a Bill of 
Indemnity for whatever currency the Bank issued over 
the limit allowed by law. 

In November 1847 there were continued commercial 
failures, including three banks, but by December the 
fury and the fear had somewhat spent themselves, the 
Bank of England's inflation policy was producing 
effects, and in some industries there was sign of 

But not for the railways. No ; there the scandals 
stank to Heaven, and if any one in 1847 had proposed 
to invest a sixpence in the morass of railroad finance 
his relatives would have had him medically examined. 

First the promoters, the landlords, and the Parlia- 
mentary lawyers had plundered and robbed the rail- 
way concerns ; then the financiers had arrived, and 
the result of their manipulations with railway stock 
had been such that it had become absolutely unsale- 
able ; hundreds of thousands of families were ruined, 
and there ensued such widespread devastation and 
panic as the country had not seen before nor even 
including the depression in the years 1921-33 since. 


' An' cheat like ony unhang'd blackguard.* ROBERT BURNS, 
The Two. Dogs. 

THE school history books tell us little or nothing 
about the Truck Acts, or of the prolonged agita- 
tions in the industrial towns which compelled the 
House of Commons to pass that series of measures 
for the enforcement of wage contracts and for ensuring 
the payment of wages in current coin, and the right of 
the wage-earner to spend his money in markets of his 
own choice. 

The subject is of considerable importance, for until 
the grosser evils of the Truck system had been struck 
at by Parliament, the Go-operative trading system, as 
we know it to-day, was really impossible of operation. 

The oldest form of Truck was one against which 
we find legislation in the year 1465 ; at that time 
Parliament had approved of regulations designed to 
prevent Trucking (and consequently ' tricking ') of 
makers of.cloth in London whereby, as the preamble 
to the Act has it, the workmen * have been driven to 
take a great part of their wages in pirns, girdles, and 
other unprofitable wares. 5 

And, indeed, so late as 1849 we can trace this species 
of truck rascality in the clay pipe trade at Glasgow, 
where the workmen who manufactured clay pipes 
for the smoking of tobacco had to take their wages 
at the week-end in the form of a basket of clay pipes, 


and were compelled to spend their Saturday evenings 
selling the pipes in the streets to get their wages. 
Oftentimes they had to sell at a considerable sacrifice. 

But the most widespread and the most hated 
form of Truck robbery during last century lay in 
the practice of compelling workmen to spend their 
wages at a particular shop or store. The early 
industrial capitalist having gathered workers into 
his factory or his mine, was not content with the 
profits he made in his industrial processes, but he 
must needs set up, adjacent to his work, a store where 
he retailed food, clothes, Bibles, whisky, etc., at 
ruinously high prices to his employees. He insisted 
upon a monopoly for his store, and he was prompt in 
discharging from his employment any independent 
workman who (or whose dependants) purchased 
household necessaries elsewhere. 

This monopoly shop system was in full swing in 
the iron and coal districts in the late 'sixties of the 
nineteenth century. Wages at that time were on a 
monthly basis (sometimes, as at Dudley among the 
nailmakers, on a three-monthly basis) and advances 
known as c subs? to keep the workman and his family alive, 
were charged at rates of interest varying from 125 per cent, 
to 900 per cent, per annum., the employers arguing 
that the more pay-days there were the more de- 
bauchery there must be. Thus for a lo?n of part 
of what they had already earned, men paid an un- 
conscionable usury. And, furthermore, the evidence 
given before the Commission of Inquiry (and there 
were lots of inquiries into the matter) was consistent 
and emphatic that the price rates in the employers' 
store was normally some 20 per cent, higher than 
outside prices ; in Staffordshire they were actually 
40 per cent, higher. 


Truck shop goods were of inferior quality ; but 
the frequent complaints by the workmen in that 
respect were only a beating of the air. The Truck 
shop managers, secure in their monopoly and selling 
inferior goods, regularly engaged in a little extra 
robbery by short weight and adulteration, whereby 
some of them left at death personal fortunes of 
10,000 ; and any nasty protests from the purchasers 
were speedily dealt with by the sudden unemploy- 
ment of the protesters. 

In 1870 the Truck Act Commissioners reported that 
in Shetland 

' Even the paupers were trucked by the Poor Law Inspectors, 
who kept shops and served them with goods instead of money.' 

In the Black Country the nailmaker was compelled to 
buy his metal from men who were called pettifoggers, 
and who owned liquor shops ; if the nailmaker did 
not drink in the pettifogger's shop he got no metal. 

In the 'sixties of last century even the proprietor of 
the great steel works at Mossend, Lanarkshire, being 
himself a Justice of the Peace, saw to it that no liquor 
shop other than that at his own works was per- 
mitted in the neighbourhood ; to his industrial 
profits he added profits on the monopoly vending 
of alcohol to his employees. 

On pay-days a small handful of coins sufficed for 
hundreds of men. The pay office window would be 
adjacent to the store, and when the first workman 
in the queue was paid his wages he had to go immedi- 
ately to the store window to pay his debts for the 
month ; the store-keeper then handed back the money 
to the pay clerk at the wages window, whereupon, but 
not until then, the second man was paid his wages. 
And so on down the queue. 


Everything the workman bought was trucked 
his food, his beer, his coffin and the quality may be 
guessed. The schoolmaster and the doctor were 
often appointed by the employer and. trucked to his 
workmen at a profit. The Hammonds l tell us that 
sometimes the employer even provided the church 
for his workmen. Until recently in Scotland there 
were colliery villages where the road of approach 
to the village was chained off to prevent grocers' 
and butchers' vans from invading the coalmasters' 
shop monopoly. 

Girls employed by the fishcurers frequently had 
to take their wages in fancy goods which they did not 
want goods the storekeeper could not dispose of 

The worsted in a Shetland shawl which sold at 
26s. was worth from ss. to 33. ; and while the girls 
nominally got gs. for making the shawl (which brought 
the cost of the shawl to, say, iss.) they were com- 
pelled to take their nominal gs. wages in goods worth 
only 43 . 

That was Truck in its most impudent and irritant 
form ; and, of course, so long as it obtained, and 
where it obtained, there could be no Co-operative 
store. But there were still other ingenious Truck 
devices whereby certain employers sought to divorce 
the workman from his wages ; for example, there 
was a common practice of arbitrary fines and 
deductions from wages based upon all sorts of 
amazing pretexts, so that the workman seldom knew 
whether he would or would not receive any wages 
at all. 

William Cobbett 2 gives us a list of the fines then in 

1 The Town Labourer, p. 412. 

2 The Political Register, 1823. 


operation at the Tyldesley Mills, where, he asserts, the 
heat was from 80 to 84 degrees : 


Any spinner found with his window open . . .is. 

Any spinner found dirty at his work . . . .is. 

Any spinner found washing himself . . . .is. 

Any spinner leaving his oil-can out of its place . . 6d. 

Any spinner putting his gas out too soon . . .is. 

Any spinner spinning with his gas-light too long in the 
morning . . . . . . . 2s. 

Any spinner having his lights too large (for each light) . is. 

Any spinner heard whistling . . . . .is. 

Any spinner being sick and cannot find another spinner to 

give satisfaction must pay for steam per day . . 6s. 

In this particular mill, says Cobbett, the employees 
worked fourteen hours per day with the doors locked. 

Again there is upon record in the year 1869, the 
case of an Aberdeen firm where the hours of toil for 
the employees were fixed as from 6 a.m. to 6 p.m., ' and 
also such additional hours as may be required ' ; the 
firm levied a deduction of 2s. per employee as a 
guarantee of good behaviour ; and if the worker 
broke his engagement or was disrespectful, unsteady, 
or intemperate, he was fined 2, and in addition his 
savings, if any, were confiscated by the employers. 

Shipyard workers on the Clyde were fined is. for 
talking during working hours ; and for every two 
hours' abaence from work c except in cases of sickness, 
of which previous notice must be given? they had to pay 
one-fourth of a day's wages. 

The colliers were systematically cheated at the 
weighing tables ; and in Northumberland and 
Durham in 1825, when a hewer's corf or basket was 
weighed, the whole basket was confiscated by the 
employer if any * deficiency ' was discovered ; 
deficiencies were frequent, and there were complaints 


by the men that the standard measure was frequently 
tampered with. 

George Howell l tells us of iron workers at Gradley 
in 1844 w h had only an average wage of los. per 
week, and even that was subject to deductions, 

Parliament legislated (or pretended to legislate) 
almost continuously against these impudent and 
rascally supplementary exploitations of the workman. 
Between 1665 and 1825 there were no fewer than 
thirty-six Acts of Parliament having reference to 
Truck and wages, but the Justices of the Peace 
authorized to enforce the laws were themselves often 
the employers involved, and they only enforced what 
law suited them. Indeed the Hammonds say 2 
that the Justices, so far from enforcing the Truck 
Acts against employers, actually used the Vagrancy 
Act in order to punish workmen who had the hardi- 
hood to make complaints against their employers 
under any of the Truck Regulations. 

1 Labour Legislation (i. 124). 

2 The Town Labourer, p. 67. 


* ... borrows money in God's name, the which he hath used 
so long and never paid, that now men grow hard-hearted.' 

NO record of financial and banking exploitation 
in the middle of last century would be complete 
without reference to the great Globe Assurance frauds 
and to the widespread embezzlements of money by 
highly-paid thieves in the banking world during that 
period. In the year 1844 Walter Watts, a 200- 
a-year clerk in the bank pass-book department of the 
Globe Assurance Company, suddenly blossomed out 
as a leader in high finance ; he appeared to have 
almost unlimited money to burn ; his establishments 
and recreations were of the most luxurious kind for 
example, he maintained two London theatres, the 
Marylebone and the Olympic in the Strand and it was 
given out that he had been a fortunate speculator 
on the Stock Exchange, his good fortune arising from 
secret information given him by his friend, King Louis 
Phillipe of France ! 

It was certainly curious that this plutocrat should 
still retain his clerkship with the Globe Company ; 
but there you were ; who could comprehend the 
freakish vagaries of the great ? 

And from 1844 to 1849 Walter Watts was an 
accepted leader of fashion and a patron of the beaux 
arts, expending, it was afterwards estimated, about 


700,000 upon his foibles. But in 1850 came the 
dramatic announcement that the sources of his income 
were fraudulent, and that he had been arrested. 

With great hauteur he denied the charges preferred 
against him ; these, he said, were but the scurrilous 
and envious yelpings of unsuccessful men ! Never- 
theless a firm of accountants produced evidence of 
fraud and forgery by Watts on the grand scale, and 
he was sentenced to transportation for ten years the 
sentence, however, never being carried out, for Watts 
managed to hang himself in the lavatory at Newgate. 

The report of the accountants to the Globe Assur- 
ance Company has not been published, and doubtless 
there was good reason enough for withholding from 
the public a report necessarily in condemnation of 
the stupidity and slackness of the Globe office arrange- 
ments, which permitted Watts to engage in his frauds, 
and for such colossal sums, and over so long a period. 
But sufficient information leaked out in the trial to 
enable us to understand Watts' modus operandi. 

It appears that the books of the Company were 
based upon the bank pass-book, which Watts kept ; 
if false entries appeared in the bank pass-book then 
these false entries were in due course transferred 
to the other books of the company. 

If the bankers cashed a Watts' cheque for 554 ios 
for, say, Annuity Policy number 6, and entered this 
554 ios. in the bank pass-book, Watts would after- 
wards erase the 55, thus making it appear as if the 
cheque drawn was one for 4. ios. only. And in order 
to make detection more difficult he would enter the 
Annuity Policy number as 64, by adding the figure 
4 to the figure 6. 

But there was 550 to cover up, so Watts searched 
for some trifling fire loss, perhaps one for 7 ios. 


which had been passed for payment, and by prefixing 
to the 7 i os. the figures 55, he made it appear that 
the sum of 557 ios. had been paid upon the fire 

It is difficult to see how forgery and jugglery like 
that could escape detection for years, especially 
when Watt's mode of living was so notoriously extrava- 
gant ; but the accountants were a long time in 
unravelling the skeins, and, indeed, it is not clear 
that the learned Judge who tried the case under- 
stood, any more than we casual readers do to-day 
the whole process of double shuffle and cross-entry 
by which young Watts he was only thirty-three 
years of age managed so cleverly and so brazenly 
to plunder the Globe funds. 

There must indeed have been great contributory 
negligence and carelessness in the office, and swingeing 
fat profits, to enable the shareholders to draw their 
dividends and Watts his plunder for so long with- 
out bringing the office down in ruins. 

Other large-scale finance thieves caught in the act 
in the middle of last century included Sir John Paul, 
the banker who was one of the leaders in the Evan- 
gelical Party in the Church of England. His banking 
firm, Strachan, Paul & Bates, failed in 1855 f r 
750,000, and the three partners, after being proved 
guilty ofi embezzlement and forgery, were each 
sentenced to fourteen years' transportation. 

And there was the case of the Royal British Bank, 
which was started in 1850 and collapsed in 1856. 
Two M.P. Directors of the Bank, Mr. M'Gregor for 
Glasgow and Mr. Humphrey Brown for Tewkesbury, 
appear to have helped themselves on a pretty generous 
scale to the bank funds. Mr. Brown deposited only 
the insignificant sum of 18 148. and on the same day 


that he opened his account he borrowed 2000 upon 
his note of hand. This 2000 grew steadily until it 
became 70,000. When the institution failed after 
six and a half glorious years, the shareholders' 158,000 
had gone and there were net losses of 250,000 to the 
depositors, plus the expenses of winding up. 

But the maximum punishment meted out to these 
well-circumstanced banking rogues was only one 
year's imprisonment. 

Then there was the case of John Sadleir, Junior 
Lord of the Treasury, banker and speculator, rogue 
and forger, who committed suicide in 1856 at Hamp- 
stead. When he crashed, thousands of poor investors 
and bank depositors inquired anxiously whether 
there was to be anything left out of the wreck of their 
savings and investments. But an unknown feudalist 
calling himself the Lord of the Manor of Hampstead 
claimed that he, the Manorial Lord, under his old 
mouldy charters was entitled to all the goods and 
estates of persons who chose to commit suicide within 
his territory of Hampstead ! What the financiers had 
missed, the feudal landowner annexed. 

First appearing in 1847 as a Dublin solicitor, M.P. 
for the borough of Carlow and as agent for many 
Irish estates, Sadleir seems to have secured large- 
scale loans upon what, as afterwards transpired, were 
forged title-deeds. But he was apparently a man 
of wealth ; he became a specialist in Parliamentary 
Bills during the railway mania ; and being abso- 
lutely trusted by the Irish priesthood, was charged 
with considerable operations in real estate on their 

In due course he became chairman of the Royal 
Swedish Railway Company, Director of the East 
Kent Railway, and joint manager of several others ; 


and was selected as chairman of the London County 
Bank and the Tipperary Joint Stock Bank. 

In 1853 (for his Parliamentary promotion was 
rapid) he was appointed a Junior Lord of the 
Treasury in Lord Aberdeen's Ministry, and promptly 
threw overboard his Catholic Church affiliations, they 
being now a hindrance and not an aid to him. 

How his financial defalcations and forgeries first 
became suspect is not clear, but by the year 1856 
he had been publicly exposed as a callous rogue and 
as a wholesale forger of title-deeds and manufacturer 
of fictitious shares, and as an utterer of worthless 
paper money in Ireland. After these exposures he 
committed suicide. His Tipperary Bank failed for 
400,000 ; the Royal Swedish shares which he fabri- 
cated were known to amount to 150,000 ; and the 
sum-total of his defalcations must have been enormous. 

But his case is specially interesting in the records of 
Big Money, neither for the method of his acquisitions 
nor for their amount, but for what happened to his 
bank pass-book after his suicide. 

At the inquest on March n, 1856, the Coroner 
of the Queen's Household, Mr. Manning, appeared 
and intimated the feudal claim to Sadleir's estates 
and properties. 

This, he said, was a case of suicide and the body 
was found^ in the Manor of Hampstead ; by letters 
patent given by King Edward VI, the Lord of the 
Manor was entitled to : 

' All chattels waived, estrays, goods, and chattels 
of felons, fugitives, persons outlawyed and put in exigent, 
or in any other manner whatsoever condemned or con- 
victed, felons of themselves and deodands* 

The whole of Sadleir's e-oods and chattels, and 


every right he possessed except his estates of inheritance, 
declared the Queen's Coroner, 

* would go to the present Lord of the Manor of Hamp- 
stead within which the body of the deceased was found 
. . . and these rights would go too, to the exclusion of 
creditors ' / 

And that in all the records of shameless and impudent 
theft must surely be the very last word. It is un- 
beatable ! 

We have already noted the railway finance crash of 
I847. 1 Scarcely had its reverberations died away, ere 
there began another series of banking failures, bringing 
again in their wake widespread ruin and devastation. 

The panic of 1857 originated, so declare the con- 
temporary writers, in the United States ; but our 
British banks and commercial houses had over- 
speculated on their own accounts, and when nervous- 
ness spread and loans were called in, the whole 
British edifice went smash again. 

The Borough Bank of Liverpool failed with liabilities 
of 5,000,000, the Western Bank of Scotland with 
liabilities of 8,911,000, the Northumberland and 
Durham Bank with liabilities of 3,000,000, the 
Wolverhampton Bank with a liability of 1,000,000, 
and the City of Glasgow Bank with liabilities of 

Wednesday, November n, 1857, was called Black 
Wednesday, for on that day the City of Glasgow Bank 
shut its doors, and everywhere commercial houses of 
long standing and good reputation were intimating 
inability to meet their debts. In London city, 
Sanderson, Sandeman & Co. failed for 5,500,000 ; 

1 P. 19- 


the Baltic trade collapsed ; many trading houses 
disappeared altogether, and between September 7 
and November 12, as Mr. Disraeli ruefully announced 
in the House of Commons, eighty-five firms closed their 
operations with liabilities totalling no less than 

And once again the Bank of England issued notes 
this time to the extent of 2,000,000 in excess of its 
legal limits, in an endeavour to boost trade and stem 
the financial panic. 

The story of the closing forty years of last century 
is the story of the preceding sixty years already 
described. Alternating booms and slumps ; crooks 
with prospectuses of glittering gains to be had from 
investments at home and abroad ; the savings of 
thousands of families periodically swept away by 
cheats and frauds operating as company promoters 
and investment bankers. 

There was, for example, an appalling crash, with 
widespread misery resulting, in 1866-7, an d again 
it had come in the backwash of a period of extravagant 
speculation and gambling. The shares of the Great 
Northern Railway fell in three years (1864-7) fro m 
135 to 104 ; Great Western shares from 78 to 43 ; 
London and Brighton shares from 103 to 51. In that 
year the Court of Chancery was blocked with the 
liquidation of bankrupt companies ; Liverpool was 
said to be almost cleaned out. 

In the late 'sixties, too, further exposures were made 
of balance-sheet faking by the railway companies ; 
the accounts of the North British were described by the 
Edinburgh Review as ' receptively manipulated,' the 
Great Eastern and the Great Western were c in serious 
financial straits ' ; the London, Chatham, and Dover 


was insolvent. Overend, Gurney & Co., the bankers, 
failed with liabilities of 19 millions. Ruin and de- 
vastation swept the land, and for the third time in 
23 years the Bank Charter Act of 1844 had to be 
broken and the Bank of England ordered to issue notes 
in excess of its legal powers. And again, as in 1847 
and 1857, the increased buying-power succeeding in 
restarting the wheels of trade. 

In 1875 Parliament had to appoint a Select Com- 
mittee, Sir Henry James, M.P. for Taunton, presiding, 
to inquire into the methods by which our financiers 
had been giving loans to foreign states. In the three 
previous years it was estimated that some 60,000,000 
of British money had been lost in foreign speculation, 
and Sir Henry's Committee trailed out a mass of fraud 
and chicanery in high places in the money market, 
that shocked for a time the simpler-minded British 

The Committee examined the circumstances of the 
issue of four groups of public loans one group to 
Honduras 1867-70, one to Costa Rica 1871-2, one to 
Paraguay 1871-2, and one to San Domingo 1869. 
All had defaulted and not a single penny of capital, 
much less interest, had ever been repaid. And, in- 
deed, it was little wonder, for, as the Committee dis- 
covered, upon some of the loans the financial promoters 
in London had netted a commission of 30 or even 
30 per cent, for a beginning, ' the miserable balances after 
this being still further attenuated by percentages and charges 
under every conceivable head.' Thus, for every 100 
they borrowed some of the States were lucky if they 
got 60. 

Sir Henry James denounced the financial vultures 
in London as * powerful and unscrupulous ' and as 
* a band of conspirators ' : in turn they threatened 


him politically and financially ; they terrorized the 
Press into all but suppressing comment upon the 
evidence before, and the report of, the Committee ; 
and to this day there is hardly a public library where 
either evidence or report is upon offer. 

The report was smothered, and nothing was done 
by Parliament to safeguard the investor for the future 
or to eliminate the panics and crises resultant from the 
amazing plunder in these foreign loans. 

Repeated attempts have been made by our financial 
houses to secure the aid of the British Navy in collect- 
ing their debts, the most glaring case this century being 
in 1903, when the State of Venezuela defaulted ; the 
bondholders of Germany, Great Britain, and Italy each 
brought pressure upon their Governments, and their 
joint naval forces were soon on the Venezuelan coast ; 
they sank ships and shelled ports, and, says the staid 
and sober Cambridge Modern History l : ' It would 
have fared ill with Venezuela if the United States had 
not intervened ' and issued the announcement that 
no seizure of Venezuelan territory would be recognized 
by the United States. So the Three-Power Finance 
fleet had to put to sea again, and the financial griev- 
ances of the money-lending houses of Berlin, London, 
and Rome were settled at the Hague, the Cambridge 
Modern History dryly adding that : 

' where tens of thousands were asked for at the cannon's 
mouth, only hundreds were allotted.' 

It is an amazing story that affair on the Venezuelan 
coast, with British Naval commanders at Puerto 
Cabella and La Guaira claiming 30 per cent, of the 
customs receipts for the European investors ; and 
the Press Association's correspondent in Trinidad 
1 Vol. xii. 695. 


sending home hot press messages that Venezuela was 
' in sad need of a little chastisement/ and poor Mr. 
Balfour, our Prime Minister, very shamefaced about it 
all, explaining to a Liverpool audience that our ' war- 
like operations ' would be * as absolutely harmless ' 
as possible ; and the British and German admirals unable 
to sail away until they got a cash payment to account, 
the British accepting 5500 cash down, and the Ger- 
mans being finally placated with promises of 76,000, 
which they agreed should be ' paid in instalments.' 

And so boom and slump, slump and boom has gone 
on, decade after decade, the severance of fools from 
their money. As every fresh crop of small accumu- 
lators saved sufficient to invest, and looked around 
hopefully for some ' certain security ' with an adequate 
interest yield, lo ! always there opportunely appeared 
some plausible leader of finance with a get-rich- 
quick scheme, casting it before his victims as an angler 
casts his flies for trout. 

Perhaps our most impudent angler for the savings 
of gullible folk in the closing years of last century was 
Ernest Terah Hooley. 

He was a pioneer of the modern method, and there 
are few more entertaining and informative volumes 
than Mr. Hooley's Confessions, 1 where the author tells 
all who care to stop and listen of how the skin game is 
really played. 

He began as a lace manufacturer in Nottingham, 
branched out into company promoting, and went to 
London in the year 1895 with a fortune of 100,000, 
determined to make it a million. 

He made his fortune more than a million ; indeed, 
he estimates that at one point in his career it reached 
1 Simpkin, Marshall, Hamilton, Kent & Co. 


to seven millions. But that was the peak, and he then 
slid downwards, went bankrupt three times, and was 
twice imprisoned for fraud. 

His modus operandi was to purchase a sound, prosperous 
company, and refloat it upon the public as a great 
limited liability concern, securing to himself colossal 
sums for goodwill, &c. 

His first big purchase was the Dunlop Tyre 
Company, which he bought for 3,000,000, and 
refloated for 5,000,000, making 2,000,000 on that 
one transaction. Similarly he dealt with Schweppes, 
Singers, and the Raleigh Cycle Company. In the 
years 1896 and 1897, he promoted companies with a 
combined nominal capital of 30,000,000. ' There 
was/ he says, 

* nothing criminal about these flotations, any more than 
there is to-day. I bought a business as cheaply as I could, and 
sold it again for the biggest price it would bring. Some people 
might say that by this method I robbed the public of millions 
of pounds, but, nevertheless, I did not do anything against 
the law.' 

Quite so ; all perfectly legal. It is the finance 
business system as operated under the recognized 

Hooley boasts that he was the pioneer in the use 
of noble ' guinea-pig ' directors as baits for the invest- 
ing public?. ' When I bought the Dunlop business in 
i8g6/ he says, 

' I thought it would be a good idea to have some well-known 
people on the board, and so I got hold of an Earl, now de- 
ceased, and said to him : " Now, look here, I'll give you 
1 0,000 for a Duke, and 5000 a-piece for a couple of ordinary 
peers. I don't mind who they are, so long as they are fairly 
well known." " Right you are, my boy," he replied breezily, 
" It won't take me long to find the people you want." 


* Nor did it. He brought the late Duke of Somerset along 
and another noble Earl. That was good enough for me. The 
new company duly came out with its titled directors and was 
a roaring success.' 

Hooley became a member of the most exclusive 
clubs the Carlton, the Badminton, and the Royal 
Thames Yacht among them ; was entertained by 
King Edward at Sandringham ; was appointed High 
Sheriff of Cambridgeshire and Huntingdonshire ; 
presided at the Assizes, and in cocked hat, gold braid, 
and sword, got himself photographed with Mr. Justice 
Grantham in his full legal regalia. 

One of Mr. Hooley's most successful publicity 
expenditures was his gift of a complete gold plate 
Communion service to the Dean and Chapter of 
St. Paul's Cathedral in commemoration of Queen 
Victoria's Diamond Jubilee. The gift was accepted, 
and when the Queen went to offer a thanksgiving for 
her sixty years of reign, Hooley's gold plate was used 
for the first time. The donor hopefully records : 

' Coming events cast their shadows before, and the ticket of 
admission which was sent to me for the ceremony was made 
out to Sir E. T. Hooley, Bart.' 

But that baronetcy was denied him in the end. 

I wonder if the Bolshevik Government of Russia 
have ever seen these Hooley Confessions. Inot, they 
should study that delightful story of the Siberian 
Goldfield Development Company Ltd., which Hooley 
floated for 1,000,000 in the year 1900, after his first 

Hooley alleges that he paid 75,000 to the proper 
gentleman at the Russian Embassy in Chesham Place, 
London, for the concession. Later the concession was 
repudiated by the Tsarist representatives, whereupon 


Hooley hastened back to Chesham Place, and was 
informed that, * difficulties had arisen, but if just a 
little sometings should come along. . . . ! ' 

Hooley understood, and came along with two bags 
each containing 5000 golden sovereigns to the 
Russian Embassy, and all was well, the Press being 
informed next day that the previous notice repudiating 
the concession had been due to a c misapprehension/ 

And one wonders if these Hooley Siberian Gold- 
field Development Shares are included in the list 
of debts which our Nationals have accumulated 
against the present Government of Russia. 

In his heyday Mr. Hooley kept a suite of rooms, 
covering practically an entire floor of the Midland 
Hotel at St. Pancras Station, as his business offices ; 
and Meredith, in his book on The Drama of Money- 
Making, tells us that in these palatial chambers some- 
times as much as 500 was paid for an audience with 
the Great One ! 

Princes of the blood royal were his intimate friends, 
and half the nobility of England were trying to culti- 
vate his acquaintance as a means of replenishing their 
old oak chests. When he first crashed in 1898 with 
debts of 1,500,000 and assets of 369,000, Hooley's 
bankruptcy proceedings provided the finest sensation 
of the year. It was alleged that the blue-blooded 
aristocrat^ leeches had sucked him dry ; one fine 
gentleman who had assisted him in his company 
promotions had got away with 100,000 ; and a 
noble earl who had taken the chairmanship of 
one of his reconstructed companies had graciously 
accepted a douceur of 25,000 for himself, and had 
been given 25,000 for distribution among 'the others 3 
presumably the remaining guinea-pig decorative 


In his evidence before the Official Receiver, Hooley 
said that another peer ' ought to have had half, 
but I think he did not know what half was.' He 
declared that he (Hooley) had given 1250 to evening 
papers so that they * should not say anything bad ' 
about his companies. When he had formed the 
Dunlop Pneumatic Tyre Company of France he 
declared that he had given a noble lord 11,300 
for joining the Board, and a cheque for 1000 for 
' squaring the newspapers.' When the Singer Cycle 
Company was formed, he alleged he gave one peer 
2000 for introducing another. When he refloated 
Bovril Ltd., his apparent profit on the deal was 
468,000, but, alas ! his real profit was only 30,000, 
so extensive were his expenses and procuration fees ; 
as an illustration of his costs, he declared that two of 
the old Bovril directors had insisted upon receiving 
35,000 each. 

Hooley had been elected to the Carlton Club in 
1896, and he told the Official Receiver that he had 
paid a gentleman called Sir William Marriott a corn- 
mission of 1000 for aiding or securing his election. 
This reason for the 1000 cheque was later hotly 
denied in the witness-box by Sir William, who declared 
that the money was really payment for other business 

But there seems to have been no dubjety about 
the acceptance by Lord Abergavenny of two Hooley 
cheques of 5000 each for the Tory Party war chest. 1 
And Hooley further testified that he had offered 
35,000 for a baronetcy, but had been told that the 
matter could really not be arranged for less than 

There is a story half-told in the Hooley Confessions, 
1 Times report, 3/11/98. 2 Times, 15/11/98. 


and half-told in the Bankruptcy Court, of how Li 
Hung- Chang in China sought to borrow sixteen millions 
sterling from Hooley. Li wanted the money to crush a 
revolution which was brewing in China, and in return 
he was prepared to give Hooley and his syndicate 
(The Hooley-James group) a complete monopoly of 
the Chinese cotton trade. 

The Rothschilds and the Barings were furious at 
this interference with their preserves, and apparently 
they brought strong pressure to bear upon the Foreign 
Office to have the Hooley-Chang deal prevented. 
Finally Hooley was informed that under no circum- 
stances need he look to the British Government to 
guarantee the security of any loan he might give to 
China. In this Hooley-Chinese cotton syndicate 
Lord Ashburton had 30,000 shares ; but the one 
Chinaman who was a member of the Board to 
give the thing a realistic touch had to be content 
with 5000. And there was a speculator called Hill, 
who apparently did not come well out of the business, 
as Mr. Hooley later testified, with engaging frankness, 
in his bankruptcy proceedings. 

* He received 10,000 for 500 shares from Mr. Hill. The 
result of the deal was that Mr. Hill received the shares, and he 
received the cash.' 

And that was Hooley company-promoting defined, 
with brevity, with concision, and with comprehensive- 
ness, by the Great Master himself! It is more than 
Hooley company-promoting ; it is company-promoting 
in general : the finance-business system by which 
clever men relieve less clever men of their cash and 
credit reserves. Mr. Hooley's distinctive contribution 
to High Finance in this country lay, if I may use a 
mixture of metaphors to describe it, in the lavish mani- 


pulation of aristocrat guinea-pigs as ground bait to 
attract fools and their money. He drew up glowing 
prospectuses, and always took care to plaster the front 
page with the names of peers and baronets whom he 
had induced to allow their names to be used as direc- 
tors ; thus was secured the atmosphere of solidity 
and safety necessary when investors are parting with 
their cash. 

Mr. Hooley's precise and definite public allegations 
at his first bankruptcy as to the fees exacted by some 
of the aristocrat directors were naturally resented by 
the noblemen concerned. The Annual Register for 1898 
records that there * ensued a shower of indignant 
disclaimers, many absolute, some partial, and some 

One gentleman was 

' proved to have made him (Hooley) an indirect offer of 
money contemporaneously with an endeavour to obtain a 
modification of his evidence, in such a fashion as to persuade a 
Judge that he had committed the offence of contempt of 

And it may be as well to place upon record what 
The Times said in its review of the year (31 /i2/g8) : 

' Several of these denials came to no more than this that 
So-and-so had not received 10,000 for joining the Board, but 
that soon after he had joined it Mr. Hooley made 10,000 for 
him over a deal. 1 * 

Hooley himself worried little about the bankruptcy, 
declaring that, c Life went on with me after my smash 
pretty much the same as before,' and * This matter of 
going bankrupt is something that requires a little closer 
attention than it has received in the past. To a Financier 
such as myself it is not a bad idea almost once every ten years 
to have a thorough clean up? 


This sang-froid, this cynical, easy, almost uncon- 
cerned attitude to the great finance scandals of 
1898 was more than the victims and their friends could 
stand, and on November 9, 1898, Lord Russell of 
Killowen, then Lord Chief Justice, addressed some 
stinging observations on commercial morality to the 
City of London. He told the City that financial 
fraud was ' rampant . . . fraud of a most dangerous kind, 
widespread in its operation, touching all classes, involving 
great pecuniary loss to the community, loss largely borne by 
those who are least able to bear it. 9 

He spoke of one case where a property alleged to 
have been on the West Coast of Africa was sold for 
48,000, when, in fact, there was no such property 
in existence ; but how, after the sale had been effected, 
an agent was sent out to buy a property for 140 
from a native chief which was supposed to answer a 
description of, and take the place of, the property 
which had already been sold for the 48,000. He told 
of another flotation of a business bought for 637, 
and sold to the public as a company for 76,650. 

But the storm blew past, and Hooley lived through 
another two bankruptcies, and a prison sentence of 
three years, after what was commonly called the 
'Jubilee Mills Fraud.' 

Hooley was the company promoter par excellence. 
He never, troubled himself about the subsequent 
management of the companies he promoted. ' I 
floated them,' he said, ' got what I could out of 
them, and let some one else nurse the baby.' And 
after he came out of prison for the Jubilee Mills case 
he wrote : 

' Most people will have forgotten the astonishing boom 
that took place in cotton mill shares immediately after the 


' Several people, with no more pretensions to honesty than 
myself, made millions of pounds, selling mill shares which 
were not worth a shilling apiece. But in Lancashire they 
fought like madmen to buy them. Mills worth 10,000 
were refloated with a capital of 200,000, and the lunatics 
who bought the shares on this basis took it all lying down 
when the inevitable crash came. 

C 7 suppose fully 10,000,000 was lost in thu cotton 
boom. If everybody had their deserts there would have been 
a hundred other men put in prison? 

What a system ! What a method of conducting a 
great industry upon which the lives and fortunes of 
hundreds of thousands of poor folk depend ! 


* The investing public have been pandered to in a manner 
altogether out of keeping with the times. . . . Victory can be 
purchased at too high a price.' Glasgow Herald (4/10/16). 

* The Imperial Democracy that held all the world beneath 
its sway, from the senators who bore historic names down to 
the humblest tiller of the soil, from Julius Caesar down to the 
smallest shopkeeper in a back street of Rome, was at the mercy 
of a small group of usurers.' Ferrero, Greatness and Decline of the 
Roman Empire, vi. 223. 

WHEN the whistle blew for the start of the Great 
War in August 1914 the Bank of England 
possessed only nine millions sterling of a gold reserve, 
and, as the Bank of England was the Bankers' Bank, 
this sum constituted the effective reserve of all the 
other Banking Institutions in Great Britain. 

The bank managers at the outbreak of War were 
seriously afraid that the depositing public, in a panic, 
would demand the return of their money. And, inas- 
much as tjie deposits and savings left in the hands of 
the bankers by the depositing public had very largely 
been sunk by the bankers in enterprises which, at the 
best, could not repay the borrowed capital quickly, 
and which in several and large-scale instances were 
likely to be submerged altogether in the stress of war 
and in the collapse of great areas of international trade, 
it followed that if there were a widespread panicky 
run upon the banks, the banks would be unable to pay 



and the whole credit system would collapse, to the 
ruin of millions of people. 

Private enterprise banking thus being on the verge 
of collapse, the Government (Mr. Lloyd George at the 
time was Chancellor of the Exchequer) hurriedly 
declared a moratorium, i.e. it authorized the banks 
not to pay out (which in any event the banks could 
not do), and it extended the August Bank Holiday for 
another three days. During these three or four days 
when the banks and stock exchanges were closed, the 
bankers held anxious negotiation with the Chancellor 
of the Exchequer. And one of them has placed upon 
record the fact that ' he (Mr. George) did everything 
that we asked him to do. 5 When the banks re- 
opened, the public discovered that, instead of getting 
their money back in gold, they were paid in a new legal 
tender of Treasury notes (the i notes in black and 
the i os. notes in red colours). This new currency had 
been issued by the State, was backed by the credit of 
the State, and was issued to the banks to prevent the 
banks from utter collapse. The public cheerfully 
accepted the new notes ; and nobody talked about 

Not since 1697 had the State itself issued paper 
money. In that year, 1697, notes in the denomination 
of 5 were issued direct to the public without the inter- 
vention of the finance houses ; and these notar were not 
backed by gold but were legal tender for the payment 
of taxes. In 1914, however, the State issue of money 
was upon a colossal scale ; the legal tender was not 
limited to the payment of taxes, but was complete 
for all purposes, and the issue was made with the good- 
will of the bankers and indeed at their plea and inter- 
cession. Had that new money not been issued, the 
private banking houses of Britain would have been 


compelled to default to their creditors in a week's time. 
Dr. Walter Leaf, late Chairman of the Westminster 
Bank and an ex-President of the Institute of Bankers, 
has enlightened us as to the real effect of the issue of 
Treasury notes under the Currency and Bank Notes 
Act of August 6, 1914. 

* The amount and manner of the issue* he declares, 
' was left to the absolute discretion of the Treasury. 
This was essentially a War Loan, free of interest, for 
an unlimited period, and, as such, was a highly profitable 
expedient from the point of view of the Government.' 1 

He proceeds to argue that, to some extent, this State 
issue of Treasury notes was covered by the gold coinage 
which patriotic people exchanged for the notes ; 
but there was no provision whatever in the Currency 
and Bank Notes Act of 1914 for any gold backing, 
and, in any event, the amount of gold coin reserved 
for pretended security against Treasury notes totalling 
some three hundred million pounds was, at its maxi- 
mum, only twenty-seven million pounds. The three 
hundred million of new money issued by the Treasury in 
1914 was therefore, in effect, a War Loan, free of interest. 
But, alas, when the War was over, the Treasury, by a 
Minute issued on December 15, 1919, announced that 
its policy was to be a gradual reduction in these 
Treasury notes ; and it proceeded year by year to take 
the notes off the Market, on the plea that the notes so 
cancelled were not covered either by gold or by Bank 
of England notes. Between the years 1920 and 1926, 
there was a progressive reduction in Treasury notes 
from 320,600,000 to 246,902,500. 

1 Banking, by Dr. Walter Leaf, Home University Library, 
p. 46. 


To return, however, to the early war period, no 
sooner had Mr. Lloyd George got the bankers out 
of their difficulties in the autumn of 1914 by the issue 
of the Treasury money, than they were round again 
at the Treasury door explaining forcibly that the State 
must, upon no account, issue any more money on this 
interest free basis ; if the war was to be run, it must 
be run with borrowed money, money upon which 
interest must be paid, and they were the gentlemen 
who would see to the proper financing of a good, juicy 
War Loan at 3! per cent, interest, and to that last 
proposition the Treasury yielded. The War was not 
to be fought with interest-free money, and/or/with 
conscription of wealth ; though it was to be fought 
with conscription of life. Many small businesses were 
to be closed and their proprietors sent overseas as 
redundant, and without any compensation for their 
losses, while Finance, as we shall see, was to be 
heavily and progressively remunerated. 

As each war loan became exhausted the lenders 
upon the first lower interest War Loans were 
permitted to transfer into the later higher interest 
Loans, and usurers' interest upon credit was added to 
the national burden, so that to-day that burden is 
insupportable and the nation staggers along, cutting 
the bread and cheese of its poor, and starving the 
social services in a vain attempt to meet the charges 
incurred in the Great War Loan ramps. 

The report of the Cunliffe Committee (1927) relates 
the story of the progressive piling up of our War Debt 
burdens. 1 

But it is in nowise a complete chronique scandaleuse 
of usury in war-time ; nor did its authors so intend 

1 Appendices to the Report of the Committee on National Debt 
and Taxation (1927), p. 18 et seq. 


it to be. We find in its pages no reference to or hint 
of the magical process by which, while the nation 
struggled almost at death's door for its very exist- 
ence, and while masses of the fittest of our manhood 
were daily being blown into bundles of bloody rags, 
our banking fraternities continued to create for them- 
selves a great volume of new credit and to lend that 
credit to us at interest, and indeed at progressively 
increased interest ; no reference to the fact that by 
this manufacture of bankers' credit some portion, 
variously estimated in amount, of what now stands 
as the public debt, was simply fabricated for private 
ends and was not a bona-fide loan of real wealth to 
the nation. Professor Soddy has estimated that the 
bankers actually created 2,000,000,000, no less, of 
this bank credit, and lent it out to us at 5 per cent. 1 
That means 100,000,000 a year upon nothing. 

The first War Loan at interest was floated in Nov- 
ember 1914, at 3j per cent., and the investors were 
only required to subscribe 95 for each 100 of 
scrip. The total amount of the loan was 350 mil- 
lions, but as there were not three hundred and fifty 
millions of money in the country, what the State 
received was credit the pledged credit of individuals 
and corporations and banking houses (the same bank- 
ing houses which, as we have seen, three months 
earlier had been begging the Treasury notes on loan 
from the Government to save their precious banking 
system from bankruptcy) . 

The second War Loan was issued at par in June 
1915 at 4j per cent, interest ; and such investors, 
and corporations and banking houses as had held the 
previous War Loan Stock at 3! per cent, were permitted 

1 Soddy, Wealth, Virtual Wealth, and Debt (Allen & Unwin Ltd.), 
P- 195- 


to transfer into the new loan at the increased rate of 

Actually of the 4^ per cent. Loan the sum of 
176,000,000 was not new loan money at all, but was 
a considerable portion of the old 3^ per cent. Loan 
silently 'jumping the counter ' on to the higher rate. 
And, in addition to that, the holders of no less than 
138,000,000 of the new 4^ per cent. Loan were old 
holders of 2^ per cent. Consols and 2^ per cent, and 
sf per cent. Annuities, who also had been permitted 
to transfer into the higher rate of interest yield. These 
conversions at the higher rate of interest meant a 
clear gift of at least 4,000,000 a year in extra in- 
terest to the money-lenders. 

But the story of this great finance ramp of June 
1915 is incomplete without a reference being made to 
the pledge extracted from the State by the finance 
houses and banks that, should there be any subse- 
quent issue of War Loan at a still higher rate of 
interest than 4^ per cent., the holders of the new 
4^ per cent. Loan (901,000,000 in amount) would 
be entitled to convert at a higher scale, and this, 
as we shall see in a moment, the great bulk of them 
succeeded in doing. 

Mr. Lloyd George has publicly declared that the 
increased rate of interest offered in the War Loan of 
June 1915 was quite unnecessary. He says : 

* Looking back, I cannot help regretting that Mr. McKenna 
should have thought it necessary to raise the interest rate of a 
Government loan to 4^ per cent. Maybe this corresponded to 
the price that was being offered for other gilt-edged securities. 
But in view of the increase in our nominal capital reserves due 
to war inflation and to the restriction of an overseas market 
for investment money, which was also one of the effects of the 
War, there can be little doubt that the Government could have 
continued to obtain as much money as it required by 


voluntary investment, without raising its interest rate beyond 
the level of 3$ per cent, at which my first loan had been 
negotiated. Investors would have had to take this, for lack of 
an alternative. And if they had been unwilling to do so, there 
would have been a clear and popular ground for the conscrip- 
tion of capital for war purposes a step which would have been 
an appropriate corollary to the conscription of man-power 
which we were soon to introduce.' l 

We must note another, even more amazing and more 
impudent, of the methods of debt and interest con- 
coction in these delirious war-times. The banks 
actually issued circulars to thousands of their cus- 
tomers inviting them to apply for a portion of the 
new War Loan and to borrow credit from the banks 
for that purpose at 3 per cent. The customer was 
to put up no money for his War Loan, no margin, 
no securities. The bank was to supply the credit, 
or rather was to back the customer's credit and was 
to charge the customer 3 per cent, interest for so doing ; 
but the State was pledging itself to pay 4^ per cent, 
interest on the War Loan which the customer was 
purchasing with his 3 per cent, money. The cus- 
tomer, after allowing for his Income Tax, &c., was 
clearly i per cent, per annum in pocket on the deal. 

It is indeed difficult to write in cold blood of these 
financial dodges, arranged between the City and the 
Treasury and committed upon a nation in extremis. 
In Marcl* 1916 the Bank of England, without any 
apparent sense of shame, issued press advertisements 
which ran : 


' If you cannot fight, you can help your country by investing 
all you can in 5 per cent. Exchequer Bonds. . . . Unlike the 
soldier, the investor runs no risk.' 

1 War Memoirs of David Lloyd George, vol. i. p. 122. 


Yet all these efforts surely paled before the shame- 
less greed of the third great War Loan in January 
1917. No foreign conqueror could have devised a 
more complete robbery and enslavement of the 
British Nation. The rate of interest in War Loan 
was jumped to 5 per cent, (or at the option of the 
investor, 4 per cent, free of Income Tax until October 
1942) and the holders of previous War Loans and 
Treasury Bills and War Expenditure Certificates were 
invited to come in and convert their old stock into 
the higher rates of booty, and for each 100 of Stock 
in the new loan, only 95 had to be subscribed, so 
that the rate of interest really had been raised to 
5! per cent. Into this 5 per cent. War Loan tumbled 
the holders on 820,000,000 of the \\ per cent. Loan, 
thus securing an extra \ per cent, or 4,000,000 in 
addition to the increases which many of them had 
secured when the rate of interest was previously 
jumped from 3^ per cent to 4^ per cent. And not 
only were the 4^ per centers permitted to convert 
into the 5 per cent. War Loan, but the holders of 
130,000,000 of Treasury Bills and 280,500,000 
of Exchequer Bonds also converted. The new 
5 per cent. Loan of 2,075,750,000 secured only, 
in fact, 844,750,000 of new loans, the balance 
being paper conversions from old lower interest 
Stocks, whereby the converters were enat^ed to dig 
deeper into the national pocket than they had hitherto 

But that was not the sum-total of the iniquitous 
ramp which the lackeys of the money interest imposed 
upon us with the 5 per cent. Loan of 1917. The 
investors were made exempt from all British Income Tax 
upon their interest payment if they chose to go and 
live abroad. Mr. Lloyd George has himself testified 


that this 5 per cent. Loan was raised at ' a penal 
figure/ and he continues : 

' The same rate governed subsequent borrowings, which by 
the end of the War had added a further 4,000,000,000 to our 
National Debt. It cost the country a dozen years of remorse- 
less deflation and concomitant depression to bring interest 
rates down again to a level that would enable this vast sum to 
be reconverted to 3^ per cent. Throughout the interval, not 
only was the country taxing itself to pay a sum ranging at one 
time as high as 100,000,000 a year more than it would other- 
wise have done, but the high yield of a gilt-edged Government 
security kept up rates all round, and made money dearer for all 
enterprises, industrial, commercial, and national. It would 
be hard to estimate the sum-total of the price paid by the 
nation in every department of affairs for the decision of Mr. 
McKenna in 1915 to increase the rate of interest paid by the 
Government on its war-time borrowings. His action had, no 
doubt, the fullest authorization from the leading circles of 
banking and finance. But the country has since then had 
ample evidence that these circles are by no means to be 
reckoned as infallible advisers. 5 l 

The 4 per cent. Tax-Free Loan of 1917 provided a 
similarly convenient cloak for an increased tribute to 
the money-lending interests. If that loan be examined 
it will be found that out of a total loan of 52,000,000, 
over 30,000,000 was conversion from previously 
issued and less attractive interest-rated stocks. 

But even in these hectic days there were stray warn- 
ings in tfie capitalist-owned press that the money 
maniacs were overdoing it. While the Financial News 
gleefully and recklessly cried : ' Money is at last coming 
in to its own ! 9 the more sober Glasgow Herald (May 
1916) was declaring that : 

' rates of interest have been raised and concessions made 
until people have come to regard the giving of money for the 

1 War Memoirs of David Lloyd George> vol. i. p. 123. 


prosecution of the War, not as a patriotic duty, but as a profit- 
making medium ; this spirit is becoming so pronounced that 
we have reached the stage when capital is deliberately withheld 
in the hope that the Treasury will ultimately offer better 
terms. As we have said, the Government has fostered this 
spirit by its system of legalized bribery.' 

And again : 

* The investing public have been pandered to in a manner 
altogether out of keeping with the times. If the process is 
continued much further it may well be that victory can be 
purchased at too high a price. ... It has been said, and not 
without truth, that it is easier to find men willing to risk their 
lives than to find capitalists willing to risk their money, unless 
at a high price.' 1 

The Daily Telegraph made no bones whatever about 
it. War Loan Investment was, it advised its readers, 
no sacrifice, but a ' golden opportunity ' and a ' certain 
gain.' The distressed Glasgow Herald protested of the 
1917 War Loan that ' It is not helping us at all to 
prosecute the War.' And in June 1917 The Nation 
declared that 

' a huge proportion of the money loaned to the Government 
is inflation representing no real savings on the part of the 
bankers and financiers who have manufactured it themselves. 
This means that when the War is over . . . the propertied 
men in this country will be several thousand million pounds 
the wealthier.' 

And now we have the indisputable testimony of 
Mr. Lloyd George, the war-time Prime Minister, 
that from 1915 onwards the country has paid 
annually huge unnecessary sums in War Loan 
interest, rising to as high as 100,000,000 per 

1 Glasgow Herald, 27/5/16 and 4/10/16. 


By January 1917 the position was that 

176,000,000 of the loan issued in November 
1914 at 3 1 per cent, had been, in the year 
1915, gradually raised to 4^ per cent. 

138,000,000 of 2^ per cent, and 2| per cent. 
pre-War loans had been gratuitously raised 
to 4! per cent, in the year 1915. 

820,000,000 of 4^ per cent, money (including 
presumably the two conversions above noted 
totalling 404,000,000 already raised to the 
rate of 4! per cent.) were gradually further 
raised in 1917 to 5 per cent. 

130,000,000 of Treasury Bill money and 
280,500,000 of Exchequer Bond money had 
also converted from lower rates into the higher 
5 per cent, interest rate. 

If we accept 3^ per cent, the outbreak-of-war rate 
for money and that is Mr. Lloyd George's figure 
as the normal and non-profiteer rate, then these 
successive bribes down to 1917 meant, upon the 
most conservative computation, a net increase of 
30,000,000 per annum in the nation's toll to its 
money-lenders. Nor does the fact that in the year 
1932 part of this money was reconverted to a 3^ per 
cent, rate, disguise, in the slightest degree, the shame- 
less money ramps that were permitted for seventeen 
years onwards from 1915. 

Whoever else made economic sacrifices during the 
War, the rentier class, as a class, did not. 

The man who invested 10,000 in British Govern- 
ment Stock before the War would have received 
interest of 325 per annum. By October 1915 he 
would have received 450 per annum. After allowing 
for the increased Income Tax from is. $d. to gs. 6d. per 


1, he was in 1915 better off by 67 per annum. And 
while the Income Tax rate rose in subsequent years, 
so too and more, did the war loan interest rise to meet 
it. For example, the man with 100,000 sunk in 
Consols in 1913-14, earning 2| per cent, got 2500 of 
an investment income. Upon this sum he had to pay 
Income Tax and Super Tax amounting to 137, is. 8d., 
leaving him with 2362, i8s. 4d. In 1918-19 the 
same man with his 100,000, by that time yielding 
5 per cent., or 5000, would pay from his 5000 an 
Income Tax and a Super Tax amounting altogether 
to 1787, i os., leaving him with 3212, ios., or an 
increase in his net income of 849, i is. 8d. after paying 
his taxation. It is true, of course, that this man's death 
duties had increased as also had his local rating and 
his cost of living, but these charges had equally in- 
creased for other classes whose income was not secured 
upon the national taxes. 

In post-War years there appears another form of 
money-lending to the State to which attention must 
be drawn the form known as Savings Certificates. 
These Certificates have had various interest yields, 
usually, however, running about 4 per cent, per annum, 
and each investor is authorized to hold as many as 
500 certificates and is exempted from all Income Tax 
upon them. By this method a man, his wife, and say 
five of a family may each hold 500 certificates, or a 
sum-total of 3500 upon which all Income Tax is 
evaded on the interest yield. 

By June 1919 we came to what was gleefully de- 
scribed as the Joy Loan. The rate of interest was 
nominally 4 per cent., but the investor had only to 
pay 80 for each 100 of stock, so that the yield was 
5 per cent., and holders of the previous 4^ per cent. 
War Loan, various Exchequer Bonds, and the first 


three series of National War Bonds were accepted at 
par. The total issue of the loan was 409,000,000, but 
120,000,000 of this sum was simple conversion from 
a lower rate of interest and really meant an annual 
increase of over half a million sterling for the taxpayer 
to meet in interest. More important, perhaps, was the 
proviso that fixed these rates until the year 1960, so 
that although, as the Manchester Guardian sapiently 
observed, the interest rate for money might fall after 
the War, the nation would be tied up to the rate of 
5 per cent., and this, indignantly declared the Guardian : 

* will mean a gift of thousands of millions of pounds un- 
earned increment to the investor out of the taxpayer's pocket 
. . . from the point of view of the English people this is the most 
burdensome and vicious loan in English History.' l 

And the comment of the Nation (Radical) 2 was no 
less indignant : 

' To find large numbers of these men and their ill-gotten 
money planted permanently on their country and sucking 
each year an interest higher than that paid to current thrift 
will act, we feel sure, as a dangerous social irritant in the body 

The Joy Loan, moreover, was made more joyous 
still by a clause decreeing that stock costing 80 was 
to be accepted in payment of Death Duties as if that 
Stock were the equivalent of 100 a clear gift of over 
17 per cent, to the heirs of the patriotic lenders. 

The Victory Bonds (100 Bonds for every 85 and 
an interest rate of 4 per cent.) issued at the same time 
raised 359,500,000, of which 71,500,000 was simple 
conversion from lower interest-yielding War Loans. 

The few isolated protests against these proceedings 
went unheeded, and year after year the Financial 

1 Manchester Guardian, 13/6/19. * Nation^ 21/6/19. 


Interests openly looted additional millions from the 
National Treasury. When in the summer of 1921 a 
load of National War Bonds was being converted into 
an additional burden to the State, The Times was con- 
strained to utter a solemn protest and warning, Under 
the heading of ' Financial Folly ' its leading article 
declared that : 

' There is being enacted before our eyes at this moment 
a most extraordinary performance in finance : and yet the 
spectacle seems visible only to a few . . . the Government 
. . . offering holders of 632,000,000 of 5 per cent. National 
War Bonds an opportunity, quite unsought, of exchanging 
each 100 into amounts of 3^ per cent. Stock, varying from 
1 60 to i&3. 1 In other words, they are being asked to receive 
from the taxpayer 4,000,000 more in interest and between 
three and four hundred millions of additional capital when the 
loan is redeemed.' 2 

By this time saner elements in the City had come 
to the conclusion that the limits of interest raising and 
capital conversion into increased plunder of the national 
debt had, at last, been reached. The public would 
stand no more of it. Yet new vistas of profit opened 
up to the rentier class when Wall Street and London City 
agreed to begin a policy of price deflation. The idea 
was that the bankers were to call in loans and over- 
drafts : they were to compel manufacturers to throw 
their goods hurriedly upon the markets so asjp raise 
cash for the repayment of their bank loans. At the 
same time the Government were to throw their surplus 
War Stores in clothing, &c., upon the markets, thereby 
intensifying the glut in the markets and making a fall 
in prices inevitable. As the prices of consumable goods 
fell, wages were to be broken. 

1 This refers to the first Conversion Loan, 1921. 

2 The Times, 13/5/21. 


But while prices were to crash the rates of War Loan 
interest were fixed, and the bankers foresaw that every 
fall in the price of potatoes and wheat and cheese and 
boots and coal would mean that War Loan interest 
would be able to purchase increasing quantities of 
these commodities. If prices, let us say, fell by half, 
the value of interest would be doubled. In other words, 
a fall in prices by half would double the value of the War Loans. 
As the nation would pay off the loans or meet the interest upon 
the loans it would require to yield up double the quantity of 
consumable wealth to the money-lending class. 

Mr. Bonar Law early saw the alarming possibilities 
of this new financial policy, and bravely warned the 
House of Commons of what it would mean to the tax- 
payer and the National Debt. c We had borrowed/ 
he said, ' 8000 millions ; we should probably require 
to pay 16,000 millions. 1 Sir Henry Strakosch has 
estimated that the fall in prices during the four years 
1925-8 added silently no less than 1,300,000,000 to 
the capital value of the National Debt, 2 and Mr. J. M. 
Keynes has declared that a fall in prices to pre-War 
level (and some prices are already below pre-War 
level) would make the British National Debt 40 per 
cent, greater than it was in 1924, and double what it 
was in igso. 3 

Nevertheless, this policy of deflation and price and 
wage deduction, with its appalling social consequences 
in poverty and unemployment, was relentlessly pur- 
sued. And not until 1932 did any British Government 
even pretend to set a limit to the toll of the money- 

1 Hansard, 2/5/22. 

2 Supplement to the Economist, 5/7/30. 

3 The Nation, 20/12/30. The policy of deflation has of course 
a similar effect upon municipal debt, feu duties, and all forms of 
fixed money contracts. 


lenders. In that year the Treasury, reversing the policy 
it had consistently buttressed since 1915, appeared with 
a loan conversion scheme which reduced the rate of 
interest upon 2,000,000,000 of Government Stock. 

The scheme, however, was voluntary ; five per- 
centers were invited to exchange into a new 3^ per 
cent, loan to correspond with the rate for money 
prevailing in 1932 ; but the appeal had to be sweetened 
with a bribe of cash down to be paid immediately 
to those who would accept the new terms ; and even 
so, the 5 per cent, rate of interest had to be paid until 
December 1932. 

The bribe, in fact, cost 20,000,000. or nearly a 
year of the saving to be derived from the Conversion 
Scheme. And the bankers insisted upon receiving 
a fee of 55. per 100 for rubber stamping any appli- 
cation for Conversion Loan which went to the State 
through their hands. 

Doubtless there were many millions of money lent 
patriotically to the State, money whose owners were 
disturbed and ashamed at the profiteering in finance 
which made riot during and after the War. The 
Rt. Hon. Stanley Baldwin, for example, who was 
Financial Secretary to the Treasury, and saw at first 
hand the roguery and ravenous greed of Finance while 
the Nation was in extremis, anonymously handed over 
150,000, representing 20 per cent, of his Jprtune, l 
to the State to clear his conscience, and to set an 

But the controllers of the Money Power, the men who 
cold-bloodedly raised their demands upon their fellow- 
countrymen with every German advance in the field 
and with every German U-boat campaign at sea ; 
the men who organized the creation of hundreds of 
1 Encyclopaedia Britannica, ii. 986. 


millions of unnecessary debt, the men who inflated 
rates of interest ; the men who, as the price of providing 
credits to free us from the threat of German slavery, 
enmeshed us in an interest burden of a million pounds 
per diem it is they whose war-time plunderings I have 
sought to record in the foregoing pages. The machina- 
tions of the organized Money Power during the stress 
of war surely provide the most convincing of evidence 
that the nation must be the sole creator of money, and 
the guardian and banker of the savings and thrift 
of its citizens, if well-being and security are ever to be 
the common lot of men. 


' And I shall be delighted to learn who, 
Save you and yours, have gained by Waterloo.' 

LORD BYRON, * To the Duke of Wellington.' 

' We have restricted credit, we have restricted opportunity, 
we have controlled development, and we have come to be one of 
the worst ruled, one of the most completely controlled and 
dominated Governments in the civilized world no longer a 
Government by free opinion, no longer a Government by con- 
viction or the vote of the majority, but a Government by the 
opinion and the duress of small groups of dominant men.' 
President WOODROW WILSON (U.S.A.), The New Freedom. 

WHEN the War began, the belligerent nations carried 
national debts amounting to 5, 7 75,000,000. 
When the War ended these same belligerent nations 
carried national debts amounting to 40,000,000,000. 
In so far as the British National Debt was concerned, 
the gentlemen of the City had a cheerful and half- 
witted formula with which they airily disposed of it ; 
Germany would pay ! In 1919 a Reparations Commission 
under the Chairmanship of Mr. Hughes, the Prime 
Minister of Australia, advised Mr. Lloyd George that 
Germany could and should pay 24,000,000,000. 
Two years later this figure was cut by half. In 1922 
the London Agreement reduced it to 6,600,000,000. 
In 1924 the bankers and financial pundits, led by 
General Dawes, reduced the figure still further. Then 
in 1929 the so-called Young Plan reduced it to 

1,700,000,000, or one-fourteenth of the original 



lunacy, and despite the fact that the victorious powers 
or some of them have lent the Germans all the 
wherewithal to pay what reparations they actually 
have paid, even the limited Young Plan payments 
are now suspended sine die. There is a stand-still agree- 
ment in operation, and in operation permanently. 
The farce is over. Not the craziest backbencher in 
Parliament to-day could be induced to raise a cry for 
a penny of reparations ; and the slogan of ' Make 
Germany pay,' which, with its ally, ' Hang the Kaiser,' 
won the General Election of 1918 for the hard-faced 
men who had done well out of the War, is now dead, 
stone-cold dead. 

But in 1919-20 the geniuses who control our 
monetary affairs drifted, gaily and light-heartedly, 
into a great Stock Exchange boom, the wildest and 
most reckless in our history. The Germans, they 
thought, were going to wipe out our debts for us. 
Prosperity had come round the corner. 

It was true that the German Mark had fallen in 
1919 from is. to id., and that the Italian lira was only 
at half its pre-War value ; but Germany and Italy 
were far away, and, anyhow, we had won the War, 
and the Labour Party had been smashed at the polls, 
and happy golden days had come how, they knew 
not, and cared less for the gamblers upon the stock 
and share market. Speculative shares rose from 100 
points ift 1918 to 145 points in 1919. Fortunes were 
for the lifting in Change Alley. Yet these stock market 
speculators were mere puppets on the end of a string 
manipulated by the secret banking camarilla which 
rules the world. 

The investment boom of 1919-20 was due and 
demonstrably due to banking policy. 

Let us compare the new capital issues in Great 


Britain for the years 1920 and 1913, and observe the 
extraordinary increase in the flotations for the home 


1920. I 9 I 3> 

For the United Kingdom . . 328,000,000 36,000,000 

,, British Possessions . . 3 /, 500,000 76,000,000 

,, Foreign Countries . . 7,750,000 ^4^0,000 

Why should there have been so marked an increase 
in the demand for new capital in British enterprises 
as between the years 1913 (36,000,000) and 1920 
(328,000,000) ? 

The answer is that in 1919-20 the banks had begun 
to squeeze the industrialists for repayment of over- 
drafts and loans ; and the industrialists, the borrowers, 
in order to repay the banks, invited Mr. Simple-Man- 
in-the-Street to subscribe to new flotations. 

In other words, the great Stock Exchange boom of 
1919-20 was not an indication of prosperity at all, 
but was in large measure a transferring of the financial 
obligations and loans, hitherto carried by the banks, 
to the Trust Funds and the widows' mites of the 
subscribing and investing public. 

The staid and impartial record of historical fact 
in the Annual Register for 1920 has it that 

* Bankers pressed traders and manufacturers for the repay- 
ment of overdrafts, and they obtained the money to do so from 
the public.' 

Precisely ! Their policy could not be more succinctly 

More in detail, the Sunday Chronicle in January 1921 
recounted how, six months before, 

* The big New York bankers had a talk, and they decided that 
wages must come down. They discussed the matter with the 


banking mandarins on this side. Then began a campaign 
of calling in all credits, of refusing loans to commercial enter- 
prises. The petrol was cut off.' 

And hence, the new companies looking for money 
from the general public ; and the new crop of baby- 
holders advertised for and secured ; the why and 
wherefore of the Stock Exchange boom of 1920. 
Bankers generally unloaded their industrial risks upon 
the general public ; but immediately the new com- 
panies were floated to pay out the bankers' over- 
drafts the bogus prosperity' was abandoned. 

In the autumn of 1920 prices were already tumbling 
down ; companies unable to secure fresh capital sold 
off their stocks at sacrificial figures indeed, at any 
figures, in order to secure money to repay the banks ; 
other concerns unable either to float new issues or 
sell stocks, simply crashed without more ado. 

Between April 1920 and December 1920, The Times 
index number for the price of materials fell from 339 
to 207 ; the new investing class discovered that their 
share script was progressively diminishing in value 
day by day ; industry slowed down ; unemployment 
by the million became a fixed feature of our civiliza- 
tion ; the nation found itself reaping the first-fruits 
of the bankers' policy of deflation. 

Never was there a monetary policy that brought so 
great misery to our world. The bankers called in 
their loans : they compelled manufacturers to sacri- 
fice their stocks hurriedly : they glutted the markets 
and they broke prices : they broke wages : they 
paralysed industry and brought hunger and want to 
hundreds of thousands of homes. 

The Times indices of commodity price movements 
show that whereas in April 1920 prices stood at 
352-9, they had fallen by the end of December 1921 


to 1 62- 1. A price collapse of over half in twenty 
months' time ! 

In the year 1920 railway shares fell 17-3 per cent, ; 
Iron and Steel shares fell 33-7 per cent. ; Shipping 
shares fell 21-7 per cent. Of the next year, 1921, the 
Annual Register declared : 

' Not for a hundred years has British finance and commerce 
experienced such a disappointing year. ... It was a period 
of unrelieved gloom.' 

The recorded failures of business firms showed : 

1920, 2286 ; 

1921, 5640 ; 

1922, 7636. 

The Annual Register for 1921 is careful to explain 
that, in addition to the scheduled list of business fail- 
ures, there were ' enormous amounts ' of credit, which 
had been given by the banks and financial houses 
to business firms, and which had become simply irre- 
coverable. But they could not make omelettes without 
breaking eggs, and in the great campaign to raise the 
value of money, and lower the value of goods, risks 
here and there had to be taken. At any rate, the 
gains would vastly exceed the losses. 

It was not * policy ' (sic /) meanwhile to allow too 
many borrowing firms to crash ; when better times 
came and prices rose a little, the banks wauld then 
permit these shaky firms to fall naturally into the 
bankruptcy courts. 

And, concluded the Annual Register, naively 

* many cases of insolvency will not be allowed to come to 
light until the losses involved have been somewhat reduced.' 

First, then, there was the boom, and the recapi- 
talization and the watered stock, and the bonus shares ; 


the small investors tumbling over one another to buy 
shares at high prices. And secondly, when the re- 
quisite proportion of the new capitalizations and 
watered stocks had been safely unloaded upon the 
simpler citizens, hey, presto ! deflation began, prices 
and wages down with a rush, dividends reduced, and 
the small investor compelled to peddle his shares in 
a rapidly falling market ! 


* That which the palmer- worm hath left hath the locust eaten ; 
and that which the locust hath left hath the canker-worm eaten ; 
and that which the canker-worm hath left hath the caterpillar 
eaten.' JOEL i. 4. 

AMONG the earlier victims of the deflation storm 
was the concern known as Farrow's Bank, the 
collapse of which brought ruin to thousands of poor 
but credulous depositors (who had been looking for 
7 per cent, interest with security), and the trial and 
imprisonment of the two leading controllers of the bank. 

Mr. Farrow had started the bank in 1904 with a 
capital of 27,000 ; it had survived for 16 years, and 
during the period it had paid interest rates of from 6 
to 7 per cent, to depositors, and at the date of its 
collapse it had collected some 4,000,000 of the 
savings of small investors who were eager for the 
promised heavy interest upon their deposits. 

To this class of dupe, directors of the bank laid skilful 
siege. They issued a magazine called Farrow's Bank 
Gazette, which, in the light of subsequent disclosures in 
Court, was surely the last word in impudent duplicity. 

Every other month there was an article by a 
Conservative M.P. attacking State and Communal 
activities, and in the leading articles we find such 
booby-trap stuff as : 

' We have had a record year. . . . The once despised Ishmael 
of the banking world, we are now the admired instrument o* 



economic service. We now rise to the highest heights, and 
never more need have any fear of our position, as our future 
place in the world is for ever assured.' 

One of the chief men in the concern, indeed, had 
the hardihood to tell the shareholders at the annual 
meeting three months before the doors of the concern 
were shut that c We have had to work patiently and 
gradually, but at last we have doubled our figures.' 

And how literally true and factful was that last 
sentence, we shall see presently. 

The directing financiers specialized in the religious 
Press with their advertisements for new depositors ; 
but although they regarded the religious as ' easy 
meat, 5 they were by no means prejudiced, or bigoted. 
Any man or any woman's money was good enough for 
them, and they would take in an Atheist as readily as 
an Anabaptist. They had seventy-two branches for 
doing what they called * business ' ; they had a 
Scottish advisory board, and they had actually 
succeeded in inducing a respected ex-Lord Provost 
of Glasgow, Sir Samuel Chisholm, to become the 
chairman of that advisory board, and used his name 
as a lure ! 

And then suddenly came the crash. On December 
20, 1920, the bank shut its doors, and the next day 
Mr. Roome, for the Director of Public Prosecutions, 
was in Court declaring that the bank was ' hopelessly 

' A shocking fraud has been perpetrated on the 
public,' he said. ' For the past nine years, from 1911 and 
onwards, there has been a heavy annual loss on trad- 
ing amounting in the aggregate to upwards of i ,000,000, 
yet the public accounts of the bank have been manip- 
ulated so as to show a profit and induce the public 
to believe that the bank was prosperous and sound.' 


Later, in June 1921, when the trial of the chairman, 
the secretary, and the accountant took place, the 
Attorney-General described the bank as c a miserable 
concern/ and declared that ' the whole business was 
a colossal and protracted fraud, stage-managed with 
stage hands and a property room. 5 

There was a deficiency of 2,000,000 ; the chair- 
man was indebted to the bank funds for large sums 
of money ; and another beneficiary in the witness- 
box admitted dealing or speculating in Mexican rails, 
' but he did not know whether it was for the bank or 
his own account. 5 

The accountant and auditor admitted that a pro- 
perty owned by the bank, called the Dreadnought 
Cement Company, and which the bank had pur- 
chased for 5500, had been entered in the bank's 
balance sheet as an asset worth 780,000. And there 
was a Clay Company in Cornwall for which the bank 
had paid 230, entered on the bank's balance sheet as 
an asset worth 150,000. 

The total ' write-up 5 of the assets, according to Sir 
Gordon Hewart, the then Attorney-General, amounted 
to no less a sum than 2,167,790 ; and in addition, 
for the year 1920 alone, there was a trading loss of 
1,114,145. So that actually at the end of the year 
there was a deficiency of 3,281,935. 

There was nothing for the shareholders t9 divide, 
and the depositors in the bank would be lucky if they 
got 35. in the i returned to them ! 

Mr. Farrow, in Court, said that he had often felt 
that handling four millions of the savings of the people 
was too great a responsibility for one man. And he 
added : ' I am not in a Court of Morals. I know many 
things are done by the banks at the end of the financial 
year. 5 


What these many things were he did not further 
disclose, or, if he disclosed, a discreet Press took care 
not to pass them on to the public. 

Nevertheless, the presiding Judge at the Court of 
Non-Morals issued sentences of imprisonment ranging 
from one year to four. 

But how were the Farrow's Bank frauds discovered ? 
What was the major miscalculation or oversight by 
the ingenious financiers which resulted in these artful 
dodgers of high finance being laid by the heels ? 

In the answers to these questions there is a certain 
grim comedy, which is all the shareholders got at the 
winding-up of the concern. 

In 1920 the proprietors of the business had con- 
sidered the time opportune for the bank to be passed 
on as a prosperous going concern to any individual 
or group of individuals possessed of more money than 
wisdom. And, providentially as it appeared, there 
arrived in London a Mr. Read, a financier of New 

He was of Norton, Read & Co., and had come over 
to London for London's good, among the methods of 
carrying out which laudable object was apparently 
the sale to British investors of 850,000 shares in the 
Callax Oil Company of Mexico. Mr. Read was 
evidently in the finance business in a big way, and 
Farrow's conceived it to be their bounden duty to 
unload their bank upon this innocent stranger from 
a far country who was peddling the Mexican oil 

So a deal was arranged. Read was to buy Farrow's 
Bank and become the owner of that prosperous and 
thriving institution. He was to put down 150,000 
for the purchase of shares, and to bring in 500,000 of 
new capital. 


Of course, there was to be compensation awarded 
to the Farrow's Bank pioneers out of the new American 
money. The secretary at first asked for 200,000 in 
compensation on behalf of the disappearing directors, 
but ultimately agreed, in order not to appear too 
grasping and greedy, to accept 100,000. Farrow was 
to get 28,000 cash down as compensation, and 
4000 a year for consenting to remain as chairman. 
Read was to be managing director for the future. 

Then the next Farrow's Bank balance sheet appeared, 
and Read was staggered to find that his promised 
500,000 was already being shown as an asset. 

Quick, slick work that, thought the oil share sales- 
man ; these skilled practitioners in London were too 
agile for him ; he might be safer in little old New York 
after all. So he cleared out of Farrow's at once on the 
ground of misrepresentation ; and the Farrow fat, 
balance sheet, and all, was in the fire. 

Nor does the American gentleman appear to have 
been so badly stung in the transaction, for Mr. Curtis 
Bennett (later Sir Henry Curtis Bennett) declared in 
Court that Read had not paid in cash to Farrows, but 
only 2500 oil shares in lieu of cash. 

In the course of the trial it emerged that the Farrows 
Bank operators had the idea that if the worst came to 
the worst the Government would intervene to save 
the bank, as Governments had saved othef banks 
before, and they threatened that they ' would go out 
on a roaring campaign for State inspection of all bank 
balance sheets.' 

Perhaps it is a pity they did not, for had their roaring 
campaign been a success we might have been spared 
the spectacle of the Committee on Finance and In- 
dustry (1931), popularly known as the MacMillan 
Committee, reporting that many of our respectable 


banks were engaged in a practice of ' window dressing 9 
their balance sheets. In that report we read (pages 
156-157) how British banks arrange their balance 
sheets for separate days. How Bank A borrows (' tem- 
porarily acquires ' is the phrase used by the MacMillan 
Committee) from the money market on the morning 
of its balance sheet and returns the sums it had bor- 
rowed early next morning, so that Bank B will be able 
to get these sums in time for its balance sheet. And 
how Bank C does the same thing next day, and so on 
down the list. 

By these dexterous sleight-of-hand methods the banks 
are able to show great cash reserves, which in fact and 
reality they do not possess ; and the MacMillan Com- 
mittee goes the length of estimating the ' temporary 
display ' figures so paraded in the balance-sheets as 
amounting to no less than 75,000,000. 

And these are the c respectable ' institutions, which, 
of course, Farrow's Bank was not. 


* There's a sucker born every minute/ PHINEAS T. BARNUM. 

IN January 1930 Mr. Justice Avory told Clarence 
Hatry and his associates that they stood convicted 
* of the most appalling frauds that have ever disfigured 
the commercial reputation of the country, frauds far 
more serious than any of the great frauds on the public 
which have been committed within the past fifty 
years. 5 

' I am unable to imagine/ he added, ' a worse crime 
than yours.' 

And The Times in its leading article upon the Hatry 
robberies, cried indignantly : 

' There have been rogues in finance before, but downright 
fraud and treason like this in the very citadel have not been 
known. . . a signalman has deliberately tampered with 
the signals : a rogue has traded upon the common expectation 
of integrity in finance. 5 l 

Of one of the Hatry concerns, the Austin Friars 
Trust, which began in May 1927, and was wound up 
in September 1929, the Attorney-General declared in 
court : 

* It must have had a gay life while it lasted, as its liabilities 
were estimated to rank at 19,000,000, and the assets at only 

But the part of the Hatry indictment which has the 
most important, and, indeed, I believe, a unique 
1 Times report, 25/1/30. 


lesson for us, is that which dealt with Hatry's incur- 
sions into Municipal Finance. 

We read of great Municipal Corporations raising 
their loans through Hatry and his group of specula- 
tors. What a list ! Among them Plymouth, Rother- 
ham, Chesterfield, Grimsby, Wakefield, St. Helens, 
Bath, Poole, Doncaster, Bristol, West Hartlepool, 
Bradford, Swansea, Wolverhampton, Sunderland, 
Baling, Newcastle, Nottingham, Blackpool, Sheffield, 
Eastbourne, Wigan, Southampton, Hastings, Tyne- 
mouth, Brighton, Stoke-on-Trent, Walsall, Doncaster, 
Birmingham, and Gloucester. 

Not all of these towns were bitten. Most of them 
escaped. But some were bled almost white ; Wake- 
firlcl, for example. That city, so The Times (September 
28, 1929) estimated, would require to get a thirty-year 
loan to meet the Hatry losses, and the annual cost 
during these thirty years would be no less than is. 4d. 
on the of rates. 

Wakefield had raised a loan through one of the 
Hatry Finance companies, for 422,000 to be paid 
in instalments. The city of Wakefield was liable for 
this 422,000 of issued stock, but had, in fact, received 
only 100,000 in cash. Worse still, it transpired that 
Hatry and his friends had issued bogus Wakefield 
certificates of stock for no less than 350,000. A total 
robbery^on Wakefield alone of 672,000 ! 

In the case of Swindon, the City Council received 
only 250,000 out of an issue of stock for 500,000, 
and, in addition, there were 220,000 worth of bogus 
certificates sold, or lying at banks as security for other 
' loans ' given to Hatry and his group. At Swindon, 
the total plunder was therefore 470,000. 

Gloucester Corporation had likewise received only 
250,000 cash for a loan liability of 500,000, and, 


in addition, the Hatry group had fabricated extra 
certificates for 217,000. Here the plunder was 

Almost incredible, is it not, that municipal corpora- 
tions should raise their public loans through money 
agents and reckless adventurers like Hatry ! And 
equally incredible, surely, that we should still, to this 
day, be without a National Investment Board, or a 
Federation of Municipal Banks, which could guide 
and assist Municipal borrowing. 

But there is this to be said to the credit of Hatry, 
that when his balloons had exploded and he stood in 
the dock charged with wholesale forgery, he did not 
whine or pretend that he had sinned inadvertently ; 
he declared in court with engaging candour : 

' I am now irretrievably and irreparably ruined. My name 
has become a by-word, and if I am found guilty, when I leave 
prison whenever that may be my punishment will begin 
all over again. . . . Sir, I do not pretend to be a fool. I fully 
realized all this when I took the risks, and equally I had every 
reason to be convinced at the time that I was saving the situa- 
tion and thereby protecting my creditors. . . . 

* Crazy as appear to have been my actions in the light of 
subsequent developments, I was actuated solely by a desire 
to do the right thing. My motives were clean and creditable. 
Sir, I will take whatever punishment is in store for me without 

* It is not my intention to apply for bail, and I hope that in 
the event of my colleagues making such an application you 
will give it favourable consideration.' 

At the age of twenty-three he was an insurance 
clerk ; at thirty, a director of fifteen companies. 

He had begun his career as company promoter by 
' organizing ' Jute Industries Ltd. (capital, 8 millions, 
which has been since surgically cut, to the great loss 
of the shareholders) ; then the Commercial Bank of 


London (afterwards known as the Commercial Cor- 
poration of London) which went bankrupt in 1923 
with heavy losses. Next he c organized ' British Glass 
Industries Ltd., and floated it off (with a swollen 
capital for goodwill) to the inevitable rocks. 

Yet, despite his record, he always seemed able to 
command any amount of Bank credit for fresh ven- 
tures, and, one after another, he floated such concerns 
as the Drapery Trust, the Austin Friars Trust, Auto- 
matic Machines, the Corporation and General Securi- 
ties Ltd., the Oak Investment Corporation, and the 
Retail Trade Securities Ltd. all of them will be 
found blacklisted on the London Stock Exchange list 
in 1929. 

In that same year, 1929, he had promoted Allied 
Ironfounders Ltd., and had undertaken to purchase 
the securities of certain steel companies for 8,000,000, 
and to form a huge steel manufacturers' Combine or 

It was in this last speculation that he broke. He 
borrowed money to purchase the steel securities. 
Part of that borrowed money he did, in fact, devote 
to the purchase of these securities, but the rest of it, 
and more besides, he spent in trying vainly to keep 
up the price of other Hatry shares upon a rapidly 
failing market. 

Many who read these lines may recollect the rapid 
fall in the price of stocks and shares in the autumn 
of 1929. Hatry was caught in that crash. 

Between September 19 and November 13, 1929 
less than two months the values of securities dealt 
with upon the New York Exchange fell by the almost 
incomprehensible figure of 8,000,000,000, a sum 
greater than the total British National Debt, and greater 
than the entire cost of the War to the United States. 


Hundreds of thousands of families were ruined in a 
single night. On one day no fewer than 17 million 
shares changed hands on the New York Exchange, 
and in an endeavour to dam back the torrent the 
Exchange was opened only for three hours a day 
and not at all upon Saturdays. 

When the typhoon hit London and according to 
the Bankers* Magazine 365 British Securities fell in 
value by 349,775,000 Hatry strove in vain to main- 
tain the value of the steel securities upon which he 
had raised loans right and left. 

He resorted, as we have seen, to the forgery of 
municipal bonds as a method of raising money. But 
the price crash was too serious and too prolonged for 
Hatry to cope with, and when he realized that his 
liabilities exceeded his assets by some 20,000,000, 
he and his group (except one Gialdini, who had bolted 
to Italy) went to the Public Prosecutor and confessed 
to c irregularities. 5 

The Hatry crash stunned the City, and not even a 
stiff sentence of fourteen years' penal servitude for 
Hatry, and periods of seven years and three years 
for his companions, abated for a long time the wrath 
and indignation of the money market towards the 
joint-stock banking system, which had, in using him 
and financing him, cast a mantle of c respectability ' 
over his operations. 


* Statesmen and patriots plied alike the stocks ; 
Peeress and butler shared alike the box ; 
And judges jobbed, and bishops bit the town, 
And mighty Dukes packed cards for half a crown.' 

POPE, * Epistle to Lord Bathurst.' 

AMONG the larger fish caught in the bankers' 
deflationary net in 1922 was Mr. G. L. Bevan. 
He was Chairman of the City Equitable Insurance 
Company and senior partner in an old-established 
firm of stockbrokers ; lived in a suite at the Carlton 
Hotel ; during his spare time he was a director in such 
solid enterprises as Leyland Motors, South American 
Stores, South Brazil Electricity, and Agricultural 
Industries Ltd. 

He was a great city magnate, one of the class which 
dictates policy to Governments. 

His City Equitable had assets of 3^ millions ; 
its i shares with only 45. paid up upon them were 
freely quoted on the Stock Exchange as worth 3 each ; 
dividends of los. were paid upon the fully-subscribed 
i ordinary shares, and the shareholders at the annual 
meeting in June 1921, rose and cheered him to the echo. 
He was indeed, as Mr. P. G. Wodehouse might say, 
One of the Ones. 

And although he knew that his balance-sheet assets 
were largely fictitious, that the company was insolvent, 
and that he himself was enmeshed in a network of 
financial fakery, he rounded off an address to the 



cheering shareholders with a homily about * insurance 
being, with banking, one of the twin bastions of modern 
finance/ and inasmuch as they were privileged to 
belong to one of these groups c it was their duty as it 
would be their fixed and constant endeavour to bear 
their part, relatively small though it might be, in a 
manner not unworthy of the traditions of this great 

A year earlier he had unloaded 250,000 eight per 
cent, preference shares upon the market : they were 
promptly oversubscribed. In addition, 464,000 shares 
had been allotted to the existing holders of shares in 
the Greater Britain Insurance Corporation and the 
City of London Insurance Co. Ltd. 

But by February 1922, Bevan had bolted from the 
country under the name of Leon Vernier and wearing 
a false black beard ; the City Equitable was in the 
hands of the Official Receiver, and shareholders were 
offering possible buyers six shillings per share to take 
shares off their hands and to assume liability for possible 
calls on the capital ; the Greater Britain and the City 
of London companies were bankrupt ; the Equitable 
Associated Co. had a deficiency of 2 J millions, and 
Ellis & Co., the stockbrokers, where Bevan had been 
senior partner, had liabilities said to be in the region of 
seven figures. 

That was in February 1922, and although the police 
in every European capital were on the hunt for him, 
he was not caught until four months afterwards in 
Vienna. He was then brought back to London, and, 
after a twelve days' trial, was sentenced to seven years' 
penal servitude for, inter alia, issuing false balance- 
sheets, a false prospectus, and fraudulently converting 
the funds of the insurance companies he had directed 
to his own use. 


The detailed modus operandi of his frauds is very 
difficult to discover ; and, indeed, The Times, com- 
menting upon the Bevan trial, frankly confessed that 
it was unable to explain precisely how the funds of the 
City Equitable, the Greater Britain, and the City of 
London Insurance Companies had disappeared. The 
Editor of The Times was baffled. 

* Great numbers of people, many of small means, placed 
their faith in him (Bevan) and his concerns. They have been 
ruined by his conduct. He juggled with the accounts ; borrow- 
ing here to repay there, and weaving a skein of financial per- 
plexities which eventually it became impossible to unravel.' 

* Tortuous stratagems ' was how Sir Ernest Pollock, 
who prosecuted, described Sevan's ingenious trickery ; 
but the jury who tried the case declared that the trickery 
was only ' rendered possible owing to other directors 
not carrying out their duties,' in other words, had the 
ornamental figureheads who were on Bevan's Boards 
of Directors done their duty, instead of merely drawing 
their directors' emoluments, the Bevan frauds would 
not have been so easily initiated, nor have continued 
for so long. 

From the reports of the trial we learn that the 
Britain Company (Bevan, chief director) had realized 
404,000 of its assets and that Bevan had * reinvested ' 
150,000 of this money with a stockbroking firm, 
Ellis & Company (where he was senior partner), and 
221,006 of it with the City Equitable Fire Assurance 
Company (where he was chairman of directors). 
And at this period both Ellis & Company and the 
City Equitable were financially upon the rocks. 

In other words, he stripped the Britain Company by 
investing its assets with himself under various aliases. 

Similarly he ' invested ' 69,000 of the funds of the 
City of London Company with Ellis & Company. 


And there was an Associated Fire Insurance Company 
(again Bevan) with a deficiency of some 2,500,000 ; 
Ellis & Company had losses declared to be in the 
region of seven figures ; and the funds of all four con- 
cerns seem to have been juggled about with the same 
dexterity and rapidity of touch as Cinquevalli used 
when he juggled with the ivory balls. 

As an illustration : there was a manager of the City 
Equitable Company who had a loan from the com- 
pany of 110,000. He had also a salary of 5000 per 
annum, free of income tax, and a commission of 4 per 
cent, on the annual underwriting profits of the company. 

These remunerations seem already absurdly gener- 
ous, but when we read the terms upon which he bor- 
rowed his i 10,000 loan, the thing becomes fantastic. 

It is almost inconceivable, but true, that there was 
a clause in his loan agreement declaring that ' if at the 
end of eleven years, the commission to be credited to 
him did not amount to 110,000 ' (and that, you will 
observe, is an average of 10,000 per annum), ' he was 
to be quit and free of the debt.' 

Moreover, if the company failed, the debt was to be 
automatically wiped out. In other words, this one 
manager was apparently in receipt of 15,000 a year 
for managing a more or less derelict company which had 
parted with 904,000 to Ellis & Co. (that is, Bevan). 
And it emerged in Court that the manager in question 
had remitted a share of his 110,000 loan to Bevan. 

Bevan had sat for years a City spider, and had woven 
his schemes in an expensively furnished room with 
expensive wood-carvings on the walls, the decorations 
above the fireplace containing the design of an eagle 
feeding her young, surmounted by the monogram 
' G.L.B.' 

Consider it well, an eagle feeding her young ! 


* Well, if I be served such another trick, 1*11 have my brains 
ta'en out and butter 'd.' FALSTAFF in The Merry Wives of Windsor. 

' . . . so-called captains of finance who skinned the country 
alive by misnamed securities.' GENERAL JOHNSON, National 
Recovery Administrator, U.S.A., The Times, 9/11/33. 

ONE of the most daring operators in High Finance 
since the present century began was Mr. Horatio 
Bottomley. His was an amazing career and one only 
possible in a civilization such as ours, where something 
for nothing is the prevailing morality, and where the 
clever humbug with a persuasive tongue can induce 
the Foolish and the Gullible to invest their savings with 
him in promising enterprises like the Sol Syndicate 
or the Great Lucknow Consols Incorporated, or in the 
purely imaginary extraction of gold from pots at the 
foot of the rainbow. 

Mr. Bottomley (for his war services dubbed not 
inappropriately Hotairo) was born in 1860 ; was 
trained as a lawyer in Birmingham ; revised proofs 
for his uncle, George Jacob Holyoake ; at the age of 
twenty-four was an active journalist in London, 
running various periodicals, including, if you please, 
a mothers' magazine. 

Ere he was thirty years of age he had founded The 
Hansard Publishing Union, and when it failed, and 
had lost its capital of 1,000,000, the Crown authori- 
ties, evidently in error, prosecuted Bottomley ; at any 



rate, he defended himself with great brilliance in court 
and was acquitted. 

Then he founded the Joint Stock Institute. By the 
middle 'nineties he had become a considerable 
magnate in the West Australian gold-mining market 
and was a very wealthy man ; was adopted as Liberal 
candidate for South Hackney, a constituency which 
he won in 1906 ; was a very heavy investor in 
theatrical speculations ; kept a racing stable in 
Sussex ; successively won the Cesarewitch, the 
Stewards' Cup, the London Cup, and the Prix de 
la Manche. 

By the end of the year 1906 his financial record can 
be computed as follows : 

Between the years 1885 and 1895 ^ e had promoted 
or been concerned in the promotion of fourteen limited 
companies with a total nominal capital of 2,981,507. 
Of these fourteen companies nine had by the end of the 
year 1906 completely disappeared in liquidation either 
* compulsory ' or * voluntary * : in one company the 
allotments were cancelled : one was reconstructed : 
one dissolved : one ' ceased ' : and one was reported 
as showing ' no dividends and no reports.' Many 
of these ' dud ' concerns were in Australian gold- 
mining. By 1906, therefore, all the fourteen com- 
panies referred to had vanished, either in liquida- 
tion, dissolution, cancellation, cessation, or * lack of 

During the next ten years, 1896 to 1906, Mr. 
Bottomley was concerned with the flotation of forty- 
three limited companies. From the names he gave his 
companies, there appear to have been thirteen of 
them, which were nominally at least, concerned with 
gold mines. But he had catholic tastes, for he floated 
rubber and copper companies, and land companies 


and Petroleum Exploration companies, mostly in 
Australia and New Zealand, and a John Bull Company, 
which he registered in Guernsey. The nominal capital 
of these forty-three ventures reached the figure of 
21,751,000. But how much of that money was 
actually subscribed by the investing public we do not 
know. What we do know is that by the year 1906, 
no fewer than thirty of the companies had disappeared 
in 4 liquidation ' or * reconstruction/ and no informa- 
tion was obtainable about seven (although in one case, 
the Eureka Gold Mines Incorporated, the i shares 
had been dealt with at 3d. each) ; in several of the 
concerns no subscriptions had apparently been re- 
ceived ; and only two companies had survived infancy 
without ' reconstruction.' 

In 1908 once again he was prosecuted by the Crown, 
but again he emerged victorious from the law courts. 
About this period, however, he was much harassed by 
civil actions raised against him by his victims or their 
relatives, and The Times, in a survey of his career many 
years afterwards , x says of him about the years 1908-10 
that : 

' The Judges criticized his doings severely, and once the 
executors of a speculative old gentleman of eighty were 
awarded 50,000 damages, after which he had to make an 
apologia in the House of Commons.* 

The 50,000 action commonly referred to at 
the time as the Masters case the case to which 
The Times refers, was raised against Mr. E. T. 
Hooley and Mr. Bottomley, by the daughter of 
an old gentleman called Masters who had died in 
1910. Mr. Hooley compromised, but Mr. Bottomley 

1 30/5/32. 


fought and lost, The Times report declaring 
that : 

* The ground of action was that the defendant persuaded the 
deceased to buy large numbers of shares in various Bottomley 
companies by making false and fraudulent representations as 
to their value, the shares, in fact, being quite worthless in 
every case.' 

The verdict of the jury was unanimously for the 

Mr. Bottomley appealed, but lost, Lord Justice 
Moulton, one of the Lords of the Appeal Court, in his 
judgement asserting that every penny paid into the 
Investment Trust admittedly had ' gone to Mr. 

In 1911 the failure of Mr. Bottomley's finance com- 
panies and the costs of his lawsuits landed him in the 
Bankruptcy Court ; in 1912 he had to resign his seat 
in Parliament. 

Between 1906 and 1921 he did not do so much in 
Dominion gold company flotation, going in instead 
for fresh ventures in Pulp and Timber flotation in New- 
foundland, London and South-Western Canal (re- 
gistered in Guernsey), Printing and Publishing in 
London, Premier Briquette Co. Ltd., Investment 
Trusts, and so on fresh pastures likely to attract fresh 
crops of * suckers.' Nineteen companies in all he 
floated during this period with a nominal capital a 
little over 3,000,000. Of the nineteen coihpanies, 
however, no fewer than thirteen had gone the usual 
Bottomley road liquidation or * reconstruction/ this 
reconstruction being a polite euphemism for the 
process by which investors who had invested perhaps 
100 in shares agreed that the hundred pounds they 
had invested were to be written down to a hundred 
shillings or some such figure. 


But these latter years of his financial exploitations 
covered the war period, wherein he had contrived to 
restore himself to popular favour, had become a 
national leader, and had killed multitudes of Germans 
every week with his typewriter. 

In 1915 he inaugurated his War Loan Club Sweep- 
stake, with headquarters at Lucerne in Switzerland. 
His prospectus was really a work of art, announcing 
without hesitation or reserve that the * club is inspired 
by the highest motives of patriotism.' Subscribers were 
told that they were c helping the British Empire/ and 
they were supplied gratis with pictures of Kitchener, 
French, Jellicoe, Balfour, Asquith, and Lloyd George. 
The prospectus was beautifully printed with the same 
kind of type used in the printing of Bank of England 
notes, and to put the final touch of proper * atmosphere ' 
to the document, there were affixed the magic figures 
5000 in heavy black figures. 

The patriots of the period were invited to purchase 
as many as possible of these participation certificates at 
2s. 6d. each ; and the certificates, pushed and peddled 
all over the country, were supposed to give their 
holders a chance of becoming prize-winners in a 
great draw (with blocks of War Loan for prizes) 
to be held in Switzerland on ist September 1915. 

Ninety thousand gallant hearts responded. If a 
citizen purchased i worth of tickets he ran a chance 
of securing 20,000 worth of war bonds. It was the 
golden opportunity of a lifetime. As Mr. Bottomley 
explained : 

' The Empire is your security. 
Tou cannot possibly lose your money. 9 

That did not happen to be quite true, for the ninety 
thousand individual speculators did lose their money, 


all but a dividend of 3*38d. for each i they had 
invested, and that 3*38d. they did not get back until 
three years after they had purchased these participa- 
tion certificates. 

It is difficult for us now to reconstruct the credulity 
and humbug of these war years or to imagine the state 
of affairs in which Horatio Bottomley (preaching 
from a weekly pulpit in Lord Rothermere's Press) 
had become one of the spiritual leaders of the nation, 
demanding stridently that Germany should be shackled 
with an indemnity 

' that will take her 500 years to pay.' 

He could emit without a blush such flatulences as 

* Great Britain will tend more and more to become a free 
Commonwealth with a Republican Government under Mon- 
archial forms and a hereditary President. 5 l 

He had gotten himself converted and wrote articles 
with headings such as * My Mission : A Plea for the 
Spiritual Revival of the Nation.' 2 He * heard a 
voice from heaven say, Write ! * So he wrote. And 
he received 150 per article for his writings. 

He also promoted a campaign for a Business 
Government, one of the undisguised essentials of 
which was a place for Bottomley in the Cabinet. A 
Business Cabinet with a Bottomley in charge of the 
Treasury would have been a sight for the gods ! The 
Sunday Pictorial (25/7/15) lent its powerful aid to the 
Business Government project, and declared that the 
Cabinet was Mr. Bottomley's c rightful place. 5 He 
ran candidates at bye-elections for his Business Govern- 
ment Party. He received 100 cash down for a 

1 Sunday Pictorial) 31/10/15. a Ibid., 22/10/16. 


patriotic lecture, and it was subsequently asserted by 
one who knew him well, that he kept three grades of 
peroration for his speeches, one on the King and 
Empire ; one on the * Land of Hope and Glory . . . 
Mother of the free, God who made us mighty, make 
us mightier yet ' ; and one about the Prince of Peace ; 
the latter being specially effective with religious 
audiences and individual auditors who had lost sons 
in the War. 

It was in these circumstances that the ninety thousand 
hopeful investors, at Mr. Bottomley's request, posted 
their participation money to Lucerne, without even 
kissing it good-bye. 

Some of us did our utmost to warn the public 
against Mr. Bottomley's impudent grafts, though but 
little heed was paid to our warnings. 

As early as August 28, 1915, I published in the 
Forward newspaper an article by Mr. C. H. Norman, 
giving selections from Mr. Bottomley's career in the 
law courts ; but apart from a little cheap bluff about 
the possibility of legal action by Mr. Bottomley, which 
I met by giving him the name of my solicitors, no 
notice was taken of the accusations. In 1916 a Mr. 
Lotinga had published several of these law court 
selections in leaflet form, with added strictures of his 
own, whereupon Mr. Bottomley offered 50 for in- 
formatiqn which would lead to the discovery of the 
printer of Lotinga's pamphlet. Mr. Lotinga promptly 
stepped forward and claimed the 50, saying he was 
the printer, and Bottomley humbly paid over the 50 
and said no more about the matter. 

During the next two years the charges against 
Bottomley were being spread up and down the country 
and were so undermining his opportunities for plunder 
that he hit upon an ingenious scheme which he 


thought would stop the campaign against him, at 
least for some time. He arranged with a man called 
Bigland to get a convenient c author 5 who would 
reprint the C. H. Norman accusations in pamphlet 
form, issue only six copies and then allow himself to 
be sued by Bottomley for libel. At the trial the 
dummy printer and publisher was to plead guilty 
and offer humble apologies to Bottomley. Behind the 
scenes Bottomley was to pay all the expenses, and the 
printer and publisher was to receive a gratuity of 100 
for his services in allowing himself to be sued ! Big- 
land did in fact secure a man called John Greaney, 
who, in due course, as arranged, was sued by Bottomley 
for libel. On July 11, 1918, Bottomley was awarded 
500 and expenses by Mr. Justice Darling and a 
special jury. 

Four years afterwards on February 19, 1922 
Bottomley and Bigland were in dispute in the law 
courts at Shrewsbury again, and curiously enough, 
before Mr. Justice Darling, when Bigland disclosed 
the story of the bogus action in 1918. Here is a 
transcript of the relevant passages in the trial at 

* Mr. Comyns Garr : You say besides the 500 he owed you, 
the third prize to you was to be " for services rendered." 
What was that ? Introducing a man named Greaney against 
whom Mr. Bottomley framed a case in the Law Courts. It 
was a bogus case, the same as this is. Mr. Bottomley arranged 
with Greaney that I was to print a libellous, scurrilous pamphlet 
containing extracts of the doings of Bottomley, and then the 
latter was to sue Greaney for damages. The case came before 
your Lordship and a jury, and Mr. Bottomley got 500 
damages. (Laughter.) 

' In answer to his Lordship, witness said the pamphlet was 
written by a man named Norman. 

' Then why was not Norman sued ? I cannot say. 

' Was he a rich man ? I don't think so ; he hung around 


the Law Courts. (Laughter.) He is one of the Socialist 
people. I have seen him recently in the Law Courts. 

' Mr. Comyns Carr : Did Mr. Bottomley explain to you why 
he preferred to sue Greaney rather than the real author ? 
Yes ; he wanted to get a verdict in the Law Courts to frighten 
every one else from doing such things. 

' Mr. Justice Darling : But why sue Greaney instead of 
Norman ? Greaney was merely the figure-head. He paid 
Greaney 100 to be the figure-head. It was a framed-up 

* Greaney had agreed to lose the action ? He agreed to put 
in a nominal defence so that really Bottomley would only have 
to address the jury as to damages. (Laughter.) 

' Mr. Whiteley said he was assuming that everything Mr. 
Bigland was saying was what Mr. Bottomley told him. 

* In answer to his Lordship, witness said Mr. Bottomley got 
a verdict for 500 and costs, but really he paid 100 and costs 
to Greaney. 

* Mr. Justice Darling : I suppose I summed up in his favour. 

* Witness : Mr. Greaney was so upset at the way Mr. Bottom- 
ley conducted the case against him that I had to take him out 
of court, otherwise there would have been a scene in court, 
because Mr. Bottomley did not carry out his plans according 
to what he told us. Greaney thought there would be little 
said, but Mr. Bottomley's beautiful and eloquent address to 
the jury was in such a style that Mr. Greaney was very dis- 
tressed, and I had to get him out of court. I took him out 
just before your Lordship summed up. (Laughter.) 

' Mr. Justice Darling : And you say Mr. Bottomley got 
500 and costs, and then he made a gift of 100 to Greaney 
for his services ? Yes. 

* Mr. Comyns Carr : Who paid Greaney's costs ? Me. 
Bottomley gave them to me, and I paid them over to the 

* That was one of the services you rendered to Mr. Bottomiey 
which was taken into consideration when you received the 
1000 ? Yes.' 

Mr. Bottomley 's faked damages and apologies from 
Greaney in 1918 greatly assisted him in his Victory 


Bond Clubs and Thrift Clubs where, according to 
one of Mr. Bottomley's biographers, 1 the total ap- 
propriation amounted to no less than 1, 172,939. 
The same writer estimated that during his financial 
career from 1889 to r 9 21 Mr. Bottomley had acquired 
from his 

Promotion of Public Companies . . 2,868,561 
From Journalism ..... 227,500 
Sweepstakes ..... 250,000 
Patriotics (including Government Subsidy ; 
by or through the Ministry of Informa- 
tion or Propaganda) . . . 37,ooo 
Victory Bond Clubs .... 1,172,939 

Total . . 4>55 6 > QQQ 

These, of course, are gross figures, and from them 
would require to be deducted what might be 
called his working expenses. For example, he had 
spent from first to last 430,000 on law costs 
and 210,000 in judgement debts given against 

But the end came when the public was permitted to 
read the trial of Mr. Bottomley at the Old Bailey 
with Mr. Travers Humphreys, K.G., for the Crown, 
accusing Bottomley of having engaged in private 
speculation with the funds of the Victory Bond Club 
and the Thrift Bond Club. Bottomley's method had 
been to borrow these funds upon his own 'security. 
One ' loan ' of 100,000 he had applied to the pur- 
chase of newspapers, and he had appropriated 22,500 
from the Victory Bond account to such purposes as 
the purchase of champagne and the maintenance of 
his racehorses. 

1 The Rise and Fall of Horatio Bottomley. By * Tenax. 5 (Denis 


The jury decided that he was guilty, whereupon 
Mr. Justice Salter declared : 

* You have been rightly convicted of this long series of heart- 
less frauds. These poor people trusted you, and you robbed 
them of 1 50,000 in ten months. . . . You will go to prison 
for a term of seven years.' 

Bottomley, game to the last, demanded to know 
if he was not to be entitled to say anything before 
sentence was passed upon him. 

* No/ replied Mr. Justice Salter ; ' not in the case 
of a misdemeanour. 5 To which Horatio retorted : 
' I should have had something rather offensive to say 
about your summing-up/ 

But what the victims who had lost their money 
thought, offensive or otherwise, is not upon record. 



' He sold the horse, it seems, and walked the Fair in search of 
another. A reverend-looking man brought him to a tent, under 
the pretence of having one to sell. "Here," continued Moses, 
" we met another man, very well dressed, who desired to borrow 
twenty pounds upon these [a gross of green spectacles with silver 
rims and in shagreen cases] saying that he wanted money, and 
would dispose of them for a third of their value. The first 
gentleman, who pretended to be my friend, whispered me to 
buy them, and cautioned me not to let so good an offer pass." ' 
GOLDSMITH, The Vicar of Wakefield. 

THE speculators and money-changers who call 
themselves * The City ' always strenuously denied 
that James White was a financier who played within 
the rules, and when in June 1927 he locked himself 
in a bedroom in his Swindon mansion, and drank 
prussic acid and chloroform, The Times published 
an obituary notice, declaring that he was only 
regarded * as a particularly bold speculator with a 
passion for deals on a large scale with corresponding 

White himself left a valedictory letter saying : 

' I have entertained Royalty, I have called dukes and earls 
by their pet names, been on the inside of politics, owned a 
yacht, run a racing stud, raised over 150,000,000 for under- 
takings, made more than 750,000 in a day, have given large 
sums to charity, and have been feted by all, and called Jimmy 
White by a world of people.' 



And this man who had called dukes by their pet 
names, and who had raised 150,000,000, began as a 
message boy in Rochdale ; became a bricklayer ; at 
the age of nineteen scraped together 100 and bought 
a travelling circus ; made money for two years from 
his circus, then sold out and is alleged to have used 
the money he obtained by its sale to crush a building 
trade employer against whom he had nursed a grudge 
from his bricklaying days. 

James White was a born gambler, and he appears 
to have dived into any enterprise where there was an 
opportunity of big gains. He organized boxing con- 
tests, one of which, however, public opinion compelled 
him to cancel that between Jack Johnson, the negro, 
and Bombardier Wells, at Earls Court, for a stake of 

He got into theatrical enterprises and became chair- 
man of Daly's Theatre : was on the Board of the 
Tyre Investment Trust ; dabbled deeply in cotton- 
mill finance during the boom period ; and was a 
leading man in the group which formed the Amalga- 
mated Cotton Mills of disastrous memory : organized a 
group which bought the Covent Garden estate in cen- 
tral London from the Duke of Bedford for 8,000,000 ; 
purchased as a speculation the whole town of Shaftes- 
bury, and the site of the General Post Office at St. 
Martin-le-Grand ; engaged himself in the flotation of 
a large humber of public companies and, as the 
Americans say, e cleaned up big, 5 so big that at 
one period he could afford to lose 1,000,000 in 
Dunlop Rubber. Indeed, he was a member of 
the Dunlop board in the days of the great Hooley 

The turf had a fascination for a man with White's 
instincts, and for a time he had a steady run of racing 


prosperity, his horse Ivanhoe winning the Cesare- 
witch in 1919, and in 1920, upon the same event, 
he is reported to have pocketed 100,000 from a bet. 

But his achievements on the racecourse paled be- 
fore the glories which made him a newspaper hero. 
When he betted 30,000 upon the rolling of a penny 
towards a sixpence lying on the floor, and when the 
story of the hazard was properly described in the 
Press, his reputation as a leader of men was made. 

It was a gamble on oil shares that finished him. 
He and Sir Edgar Mackay Edgar and Mr. W. B. 
Mitford were prominent in the launching of a 
9,000,000 company called British Controlled Oil- 

During the years 1924-6 the shares of this concern 
fluctuated wildly between 53. and 253., and White 
set himself to secure majority control with a view to 
the ultimate sale of his holding at an inflated price 
in the American market. 

White bought great blocks of British Controlled 
Oilfield shares in the expectation that the market 
would rise : but unfortunately for him Sir Edgar 
Mackay Edgar had other views, and on the eve of 
settling day on the Stock Exchange hundreds of thou- 
sands of shares were thrown on the market, the price 
falling by 5$. 6d. a share. White was short of 250,000 
to settle with the brokers, failed to raise the money in 
time, and quietly poisoned himself. * 

When White passed out, he had contracted to buy 
Wembley for a sum of 300,000, and his offer had been 
accepted, yet he left nothing but eight racehorses, 
unsecured liabilities of hundreds of thousands of 
pounds, and a debt of 1,700,000 to the Income Tax 


In his heyday believed to be one of the richest men 
in the world, Captain Alfred Loewenstein, of Melton 
Mowbray, Brussels, and Biarritz, vanished in mid-air 
from his lavishly appointed aeroplane when flying over 
from Croydon to the Belgian coast in July 1928. 

His disappearance greatly upset the artificial silk 
and electricity shareholders in two continents. But 
although Loewenstein committed suicide (when his 
body was discovered in the sea, a post-mortem ex- 
amination disclosed the presence of * toxic matter'), 
and although he was evidently worried by a heavy fall 
of 12,000,000 in the value of the shares in his Inter- 
national Holdings Company, he was still able to leave 
his widow a small dot of 5,000,000, and there would 
appear to be no suggestion that he feared exposure 
of his money-making methods upon the ground of 
illegality, or that the police anywhere were camping 
upon his trail. To this day his suicide is inexplicable. 

Loewenstein, for all his wealth, was a showman. 
Even on his suicide voyage, he flew across Channel 
accompanied by two secretaries, a valet, and two 
typists. In the earlier months of 1928 he had gone 
to Canada with an entourage of four secretaries, two 
typists, a private detective, a chauffeur, an air pilot, 
a masseur, and a valet. 

At Biarritz, when he bathed in the sea, he was accom- 
panied by two valets, two secretaries, and a masseur. 
He kept a suite at Claridge's in London, and one at the 
Ritz in Paris. 

He was born in Brussels in 1897, his father, a stock- 
broker, sending him over to Folkestone to be educated. 
Afterwards returning to Brussels when about twenty- 
two years of age, young Loewenstein laid the basis of 
his fortune by daring, but successful, speculations upon 
the Stock Exchange. 


He floated electricity concerns in two continents 
Brazilian light and power and traction companies, 
Rio de Janeiran, San Paulan, and Mexican trams, 
the International Hydro-Electric Securities Corpora- 
tion (registered in Canada), and Barcelona traction, 
light, and power. 

Apparently, the chief Loewenstein effort in British 
finance lay in his effort to secure control of British 
Cellulose, now called British Celanese, a pioneering 
firm in the manufacture of artificial silk. In that con- 
cern Loewenstein held 700,000 of Debenture Stock, 
and had a royalty upon all the products. 

Later, however, he quarrelled with the brothers 
Dreyfus, the Swiss chemists who were the technical 
directors of the business, and he disposed of his British 
holding for 1,000,000. But through his International 
Holdings Company he still dominated, or sought to 
dominate, artificial silk production in Germany, 
Belgium, France, and Holland ; and he had some 
interest in a Polish concern. 

There is no trace of him in artificial silk in America, 
but his great ambition was said to have been to amal- 
gamate and control the world's electricity plants, and 
he seems to have nibbled at the idea (later developed 
by the Swede Krcuger) of buying trade monopoly 
rights from any Government in urgent need of hard 

In the year 1926, for example, he offered tHe Belgian 
Government a loan of 10,000,000, free of interest for 
one year, but with other conditions attached to the 
proposal, which were never publicly disclosed. To 
the French Government he made some similar offer. 
In both cases his offer was refused. 

I have already said that no one has, so far, suggested 
any reason why Loewenstein should have committed 


suicide when he did. True, it is known that a syndicate 
of European banks was at war with him although the 
reason for the feud is obscure ; it is, indeed, one of the 
major mysteries of the financial underworld during 
the past dozen years and it is known that in the 
summer of 1928 this syndicate had pulled down the 
value of the shares in his International Holdings 
Company from 31,000,000 to 19,000,000 ; true, 
also, that he had been foiled in his attempt to secure 
control of the Bank of Brussels. 

But he was still a multi-millionaire ; was still in the 
early 'thirties ; and was still with a prospect (if the silly 
system which permits it should last long enough) of 
realizing his great ambition of being the recognized 
king of all the electricity and artificial silk in the world. 
Why, then, commit suicide ? 

Hydro-Electric shares had fallen under the attack 
of his financial enemies from 85 1 dollars on May 7 to 
25 dollars on July 5 ; that was a very considerable 
smash ; but it in no wise explains his stepping out of 
an aeroplane flying high over mid-Channel when he 
still possessed a private fortune of over 5,000,000. 

Other money maniacs had their Napoleonic dreams 
of world conquest dissipated in the great price de- 
flation in post- War years, but none of these enemies of 
civilized men had committed hari-kari so long as he 
retained five millions in his private possession. 

Loewdhstein's death, then, remains a mystery. 
Immediately after his dramatic disappearance, all 
discussion and speculation upon his high finance 
suddenly, and completely, disappeared from the Press. 
But his seizure of the control of 30,000,000 or 
40,000,000 sterling in electricity and artificial silk 
in a brief ten years' scramble is no mere hypothesis ; 
it is a fact ; and that he was permitted to make it ; and 


that he was permitted to levy a tribute, real and cal- 
culable, upon the silk stockings of millions of women, 
and upon the power of light and traction of the industry 
of a dozen sovereign States, is a central and vital 
element in our economic and social history. We ignore 
such facts or remain in ignorance of them, at our 


* A negro preacher, having vainly attempted to collect money 
from a peripatetic flock, thanked God that he had got his hat 
back.' Sir MAX PEMBERTON. 

VERY successful operator in the realm of High 
-^Finance must of necessity adopt a different tech- 
nique from his immediate predecessors. Whenever a 
flock of investors are robbed by a new device, the 
device itself becomes public knowledge, and the 
investing class generally is placed upon its guard for 
at least a generation against a repetition of that 
particular form of fraud. New methods of preying 
upon the credulities of the hopefully acquisitive public 
must therefore be employed, and when these methods 
are exposed, they must in turn be discarded for others. 
The confidence trick has to be continuously varied, 
and the grand scale operator who would clean up 
millions dare not resort to hackneyed methods. 

The most daring rogue of post- War Finance, Ivar 
Kreuger the Swede, opened out in new territory. He 
set himseflf to secure a world monopoly of a commodity 
in daily use in every household, and to achieve his 
ends he purchased monopoly rights from needy 
Governments : the necessary bank credits for his 
loans to these needy Governments he raised by the 
simple expedient of forging bonds which he deposited 
with the banks as * security. 5 And he created some new 
banks and got control of other banks in order to enable 


this transfer of depositors' money, in exchange for his 
forged securities, to be readily made. The trick was 
really simplicity itself. The banks collected the deposits 
from customers. Kreuger collected the deposits from 
the banks, giving them forged Italian Government 
bonds in their place. Thus matters were kept all right 
for the banks' auditors and the balance-sheets, the 
auditors not being aware that the * securities ' were 
forged, and the existence of the ' securities ' never 
coming to the knowledge of the Italian Government. 

When a government was in financial difficulties 
and, goodness knows, there have been many of them 
in that position since the Armistice in 1918 Kreuger 
would offer to arrange a huge loan upon the condition 
that he was granted a monopoly for the sale of matches 
within the boundaries of the borrowing country. 

The needy government got its credits all right by 
Kreuger's impudent forgery of the State bonds which 
he had handed over to the banks in Sweden and else- 
where as cover. And not only were these bonds 
fraudulent, but every time a safety match was struck 
in the borrowing country a disguised tax had to be 
paid to this multi-millionaire Swedish crook. 

Born at Kalmar, Sweden, in 1880, to a middle-class 
family, his father a match manufacturer in a small 
way ; nothing remarkable about his boyhood ; be- 
comes an engineer, and in 1903 is in Lond9n in the 
employment of a well-known firm ; drifts to South 
Africa, where he speculates in real estate at Johannes- 
burg ; is next found in Canada and the U.S.A. in 
1905 ; two years later is back in Sweden running a 
concrete engineering business with a man called Paul 
Toll; by 1911 Kreuger and Toll have become a 
limited liability concern with a capital of 50,000 ; 
two years later Kreuger sets out to amalgamate and 


trustify small Swedish match factories ; steadily he 
adds business to business ; the War aids him ; by 
1917 he is managing director of a Swedish match 
company operating a capital of 5,000,000 ; in 1919 
the capital has grown to 20,000,000 ; a year or two 
later it is 40,000,000, and Kreuger is paying out 
dividends of 12 and 15 per cent. 

A national nay, an international hero, for his 
shareholders were by that time scattered over two 
continents, and his 15 per cent, stocks regarded every- 
where as a gilt-edged security ! 

From this point onwards, it is difficult to disentangle 
the threads in the great Kreuger web of financial 
manipulation. And when he shot himself in Paris in 
March 1932, so complicated and confused were his 
affairs that the Swedish committee of investigation 
entrusted with the examination of his means and estate 
had to begin tracing his tortuous operations through 
nearly 400 subsidiary concerns in timber, wood-pulp, 
iron-ore, banks (at least one in Holland created for no 
other purpose than the fraudulent manipulation of 
imaginary, and the duplication of genuine, assets), and 
engineering concerns. 

He controlled many companies, from gold mining, 
to the Swedish Ericcson Company responsible for the 
automatic totalisators. His talons were all over the 
world in banks in Ecuador ; in the national finances 
of Latvia ; in Rumania and the kingdom of the Serbs 
and Croats and Slovenes ; when he died he was 
on a fair way to dominate the match industry in the 
United States as he had already done it in Germany 
although when subsequently the bluff was called in 
the New York Courts, his International Match Cor- 
poration could only produce cash assets of 33,000 
against an indebtedness of 20,000,000. 


In the British Match Corporation, with a capital 
of 6,712,500, Kreuger 5 s Swedish Match Company 
had holdings of 1,856,250 ordinary shares. So he was 
apparently nibbling for control here, too. 

But that apart, according to the report issued by the 
British Protective Committee, 1 8000 separate British 
investors had been bitten. The face value of their total 
holdings was i 1,392,000, but inasmuch as their stocks 
had been purchased at a huge premium it has been 
estimated that the real amount of the loss to British 
investors was about 50,000,000. 2 

Let us cast our minds back to the year 1929, the 
period of the Young Plan for the financial rehabilita- 
tion of Germany. The Young Plan so-called because 
it was sponsored by Mr. Owen D. Young, a leading 
financier and official representative of the President 
of the United States need not concern us here beyond 
to note this, that it involved the raising of a sum of 
25,000,000 by the German Government. 

Forward into the breach stepped Ivar Kreuger, the 
international safety match king. He would raise the 
25,000,000 for Germany conditionally upon the 
German Government granting him a monopoly for 
the sale of matches within its territories. Kreuger's 
terms were accepted. 

For every 100 nominally borrowed, only 93 was 
in fact to be paid, but the German Government, of 
course, was debtor for the 100 and had to pay 'interest 
upon that 100 at the rate of 6 per cent. 

The German match monopoly was given to a newly- 
created company, the Deutsche Zundholz Verkaufs 
A.G., where Kreuger held half the shares. The com- 

1 Times, 18/7/32. 

2 Mr. Francis Williams declared in the Daily Herald that this 
was indeed a ' conservative ' figure. 


pany was to be allowed to earn 8 per cent, profits per 
annum, and all remaining profits after the 8 per cent, 
was paid were to be divided in equal shares between 
the German Government and the Swedish Match 
Company (again Kreuger). 

But to get these profits the retail price of matches 
was to be increased forthwith in Germany from 2 Jd. to 
3d. per packet of ten boxes, an increase which was 
estimated to yield no less than 700,000 per annum. 

Under this ingenious scheme the whole German 
nation 60,000,000 people were to pay an indirect 
and disguised tax to the financial Colossus at Stock- 
holm and his backers. 

Kreuger had no doubt whatever about his ability 
to raise the 25,000,000. If he could not raise the 
money in a bona fide way, he would raise it otherwise. 
And one of his otherwise methods was the expedient 
of wholesale forgery. 

He simply invented bonds and deposited the forged 
bonds with the banks which he either owned or con- 
trolled as * cover ' for huge blocks of bank depositors' 
money which he calmly appropriated in exchange for 
the ' securities.' 

He forged forty-two Italian Treasury Bills, each 
having a denomination of 500,000 a total of 
21,000,000 purporting to be signed by the Italian 
Minister of Finance. These, with other 6,000,000 
forgeries 'of Italian Government promissory notes, he 
used as backing for his German (and other) Govern- 
ment loans. 

Some of his fellow-directors in Sweden subsequently 
pled that they thought the Italian bills were genuine, 
the more so as Kreuger pledged his colleagues to 
secrecy about the deal, on the ground that disclosure 
might involve serious complications for Italy ! What 


it did do in the end was to involve serious conse- 
quences for Kreuger's fellow-directors. 

He appears to have projected negotiation for a 
similar 7,200,000 loan (180,000,000 pesetas) to the 
late dictator of Spain, General Prima de Rivera. 
The Times l quoting the report of the official investi- 
gators, says that the contract was found in Kreuger's 
safe, but that the money was never paid over to Spain, 
although the loan was shown as an asset on the books 
of Kreuger and Toll. We have never yet been favoured 
with the full story of this enterprise. 

The name of a cousin of the ex-King of Spain has 
been dragged into the story as a vigorous opponent, 
and the late King of Spain, Alphonso, was compelled 
in person to issue a firm denial that he was privy 
to the Kreuger plot against the Spanish people. 

What we do know for a surety is that Kreuger paid 
a Spanish confederate 66,000 to facilitate the con- 
tract, and that the confederate bolted with the 
money, and when threatened with prosecution, calmly 
threatened the publication of documents which would 
involve many highly-placed Spaniards. So there was 
no prosecution. 

Again, in the Kreuger and Toll balance-sheet for 
1930 there appears an asset of 34,600,000 florins as 
lying with ' The International Bank and Finance 
A.G., Danzig, 5 although, as a matter of fact, this 
bank did not open its doors until the first 'week of 
January 1931, and never at any time did Kreuger 
and Toll have any money there at all. Sheer brass- 
faced impudence could scarcely go much further than 

In Holland the balance-sheet of the Garanta Bank, 
which was owned secretly by Kreuger, showed assets 
1 18/4/32. 


of 5,000,000 in Poland ; these * assets/ in fact, were 
simply money extracted from the bank by Kreuger. 

Various estimates have been given of the extent of 
the Kreuger swindles, some placing the frauds as high 
as 150,000,000. But in September 1932 the admin- 
istrators of Kreuger's estate issued an approxi- 
mate estimate showing his personal deficiency at 
53,600,000, and the deficiency in the firm of Kreuger 
& Toll at 13,600,000, a total of 67,200,000. 

In their final report upon Kreuger's affairs issued 
in Stockholm on January 9, 1933, Messrs. Price, 
Waterhouse & Company, the accountants, declare 
that between January 1918 and March 1932, Kreuger 
personally appropriated that is, stole 432,046,000 
kronen (with the kronen at 1 8 to the i), nearly 

But what did he do with 24,000,000 ? What 
could he do with it ? How could he or any one else 
spend 24,000,000 in the space of fourteen years and 
three months ? Where did the money go ? And 
why were not his defalcations and forgeries suspected 
or detected by some one in the army of clever accoun- 
tants and bankers and brokers who so authoritatively 
warn democracy to leave the control of finance to 
the wise men who understand it ? 

Twenty-four millions sterling, illicitly extracted by 
one man ! Clearly the financial system as it is operated 
to-day does not provide adequate checks against large- 
scale speculation and fraud. 

Nor even yet has the full tale of Kreuger's manipula- 
tions been told to us. 

The Dagens Nyheter, one of the leading organs in 
Stockholm, in July 1932 openly and specifically 
alleged that Kreuger personally gave Herr Ekman, the 
then Swedish Prime Minister, 50,000 kronen for his 


electoral funds ; that he also gave by proxy to 
the leaders of the Swedish Conservative Party, 25,000 
kronen ; and that he gave financial assistance (amount 
not announced) * to the anti-Muscovite section of the 
Communist Party, 5 whatever that may mean. 

In August M. Ekman was compelled to resign his 
chairmanship of the People's Party, and King Gustav 
obliged him to tender his resignation as Prime Minister. 
An interesting story here, if we could get at all the 
details of it. 

And the tenth report of the Police Commission of 
Inquiry, issued at Stockholm at the end of June 1932, 
declares that one of Kreuger's fellow-directors had 
accused M. Lofgreu, when he was Prime Minister of 
Sweden in 1927, of * having advised Kreuger of 
methods of issuing debentures by which he could 
elude Swedish taxation.' In one year alone, 1928, 
Kreuger is alleged to have netted 830,000 from this 
debenture trick whatever it was. 

And the same report estimates that he, Kreuger, 
made a profit of 2,000,000 between 1927 and 1930 
out of Belgian and French Government stocks. 

Yet how silent the usually enterprising Press sleuth- 
hounds in Europe are about this graft in high places. 
Kreuger bribed the political parties and the Press in 
Sweden. Does any one believe that he abstained 
from similar corruption elsewhere ? 

He induced government after government* to give 
him a monopoly of the sale of matches. Does any 
one believe that this private ' enterprise ' was conceded 
the power to rob the nations without lavish pre- 
liminary distributions of baksheesh ? 

In France, Kreuger found that the sale of matches 
was a State monopoly ; he could not get in there. 
But he procured a monopoly for the sale of match- 


sticks from aspen wood, and he got his shares quoted 
on the Bourse. In return, he raised a loan of 
15,000,000 in America for France. 

He tried the game in Soviet Russia sought her 
timber forests, but was refused ; could get no accom- 
modation there ; and boiled over in wrathful Press 
communiques when he found Russia underselling his 
matches by from 50 per cent, to 75 per cent, in price, 
in the neutral markets. 

It was America that finally pulled him down, and 
there is a story, by no means an improbable one, 
that they tell in Wall Street of how it was done. 

One group of bankers had urged President Hoover 
to propose a moratorium for a year upon Germany's 
State debts ; this meant that Germany would 
not pay interest or sinking fund upon Kreuger's 
25,000,000 loan to Germany. Another group, which 
had lent millions of good dollars to Kreuger, strongly 
urged the President to exempt the Kreuger loan to 
Germany from the operation of his moratorium. 

The non-exemptors won, and in March 1932 
Kreuger, having to pay his creditors and finding his 
income stopped, and being unable to carry on a bluff 
with forged bonds any longer, ended his life of inter- 
national piracy, chicane, and fraud with a revolver 
shot, in his flat at the Avenue Victor Emmanuel III, 
in Paris. 


* A fool and his money be soon at debate.' TUSSER, Good 
Husbandry Lessons. 

* We may be moving towards an era of world sanity in which 
international commerce will be less subject to the interests and 
juggling tricks of bankers and high financiers.' Rt. Hon. D, 

IN previous chapters the reader has seen some- 
thing of the almost incredible waste and loss 
involved during last century in the system of financier 
manipulation of our capital investments both in the 
home and foreign markets. Of the closing years of 
that century, 1890 to 1897, the Official Receiver 
reported : 

* There had been lost to the community and gone into the 
pockets of the unworthy no less a sum than 28,159,482 ; 
made up of losses of creditors dealing with companies, 
7,696,848 ; and of the loss to the wretched contributories 
or shareholders, 20,462,633.' l 

But these figures relate to companies wound up by 
compulsory order only, and exclude all cases of loss by 
' reduced capital. 5 

The MacMillan Committee on Finance and Industry 
(1931) 2 selected the year 1928 for an examination 
of the results of investment in public companies in 

1 Quoted in The Decay of Capitalist Civilization, by Sidney and 
Beatrice Webb, p. 107. 
8 Cmd. 3897, p. 166. 


the home market. During that year the British 
people subscribed i 17,000,000 for shares and de- 
bentures in 284 companies. Two and a half years 
later, that is by May 31, 1931, the total market value 
of the 117,000,000 of shares and debentures had 
fallen to 66,000,000, a dead loss of 47 per cent, to 
the investor. Indeed the loss must have been much 
greater than that, because many of the shares were 
unloaded upon the investor at a high premium. 

The MacMillan Committee go on to tell us that of 
the 284 companies in question, no fewer than 70 had 
already been wound up, and the capital of 36 others 
had no ascertainable value, the losses upon these 
106 companies amounting in all to 20,000,000. x 
Spurlos versenkt. Sunk without trace ! And the poor 
victims of the Hooleys, Hatrys, Bottomleys, and their 
kind, the poor victims who lose 66 per cent, of their 
investments in three and a half years, are befuddled 
into believing that it is the Socialists who would 
confiscate their capital ! 

In post-war years the speculator and the share 
gambler fastened on the Lancashire Cotton Industry, 
picked it clean, and then left it smothered under huge 
and impossible bankers' debts. 2 Professor Daniels in 
January 1928 told the Royal Statistical Society of 129 
cotton companies with a paid-up capital of 19,000,000 
which had been purchased by speculators during the 
cotton boom of 1920 for 38,250,000. Six months 
later the balance sheets of these companies showed 
loans of 17,000,000, bank overdrafts of 5^ million 

1 For a subsequent examination of these figures see the Economic 
Journal for September 1933, p. 453 et seq. 

2 Lancashire under the Hammer Bowker (Hogarth Press). Also 
pamphlet by Zeph Hutchinson, secy., Bacup Weavers, Hands off 
our Wages and Hours. 


pounds and debenture loans of 1,200,000. By the 
end of the year 1927 Mr. S. S. Hammersley, M.P. 
for Stockport, had to report in sorrow to the House 
of Commons that 200 mills were in the power of the 
banks and that 90 per cent, of these 200 mills were in 
the financial control of four banks. 1 The Balfour 
Committee on Industry and Trade reported that to 
the best of their knowledge the speculators had 
purchased many cotton mills at about eight times the 
paid-up share capital of the concerns acquired. Upon 
210 of these over-capitalized companies dividends 
fell to an average of 1*3 per cent, per annum during 
the seven years 1921 to 1927, while in 65 cotton mill 
companies which had managed to escape the blight- 
ing hand of the reconstructing financier, dividends 
averaged, during the same period, the much higher 
figure of 8-7 per cent. 2 

The banks carrying the loans and the new share- 
holders carrying the inflated value shares turned with 
one voice and one accord, demanding that the workers 
in the cotton industry accept wage reductions as part 
of the common sacrifice, to make good the years that 
the locusts had eaten. That, as always, is the ritual 
in the wake of a reckless financial skinning of an 

The Balfour Committee, greatly daring, expressed 
the opinion that : 

* It is one of the most disquieting phenomena of recent 
years that shrewd business men should have allowed a great 
staple industry to fall so easy a victim to speculators and 
company promoters.' 

1 Speech, 19/12/27. 

2 Part II. of the Survey of Industries. Committee on Industry and 
Trade, 1928, p. 23. 


It might have added some suitable commentary 
upon the fact that the new victimized proprietors 
had promptly taken whatever steps lay in their power 
to compel, through lowered wages, the workers in the 
industry to share their burdens. 

And so far as our national investments abroad 
are concerned the fun is even more fast and even more 

The MacMillan Committee on Finance and Industry 
declared that * in some respects the City is more 
highly organized to provide capital to foreign countries 
than to British Industry.' 

There is, of course, a common and carefully 
fostered delusion that these investments of British 
savings in foreign countries always, and every time, 
serve British ends and British purposes, and that 
the export of credit always and every time goes 
out in the shape of capital goods to develop the 
World and increase the buying power of its 

Neither of these assertions is true. 

Our private speculators with our national credits 
and savings, have speculated and gambled in all 
manner of enterprises, definitely and demonstrably 
inimical to the interests and the national policy of 
this country. 

In foreign armaments, in fortifying the Dardanelles, 
in rum-running, in cheap labour factories for the 
manufacture of jute cloth in Bengal, or for coir mats 
in Travancore, in bolstering up reactionary and 
oppressive dynasties in a thousand such directions 
our national capital has been exported. 

The Times on October 14, 1919, carried a two- 
column advertisement headed 


* Chinese Government 8 per cent. Sterling Treasury Notes. 
1925! * 928* 

' Issued to Vickers Limited by the Chinese Government in 
virtue of an Agreement dated the First day of October 1919, 
the signature of which and its sealing by H.E. the Chinese 
Prime Minister has been officially communicated by the British 
Minister in Pekin, through H.M. Foreign Office to Vickers 

The loan was issued under licence from the Treasury ; 
it was handled by Lloyds Bank, and the prospectus 
stated that the loan was for the supply of aeroplanes 
and aerodromes. Preferential consideration was to 
be given to applications from existing shareholders 
in Vickers Limited. The total amount of issue was 
1,803,300 ; the rate of interest was 8 per cent., 
and only 98 was required to be subscribed for each 
100 of stock. 

Needless to say, this loan is in default. The 
investors' money is gone. 

The armaments of foreign countries are a much- 
sought-after field for speculation by our finance houses. 
In 1909 we find Messrs. Vickers & Armstrong- 
Whitworth creating a subsidiary company in Japan, 
the Nippon Steel Works. But there were other firms 
competing for the armament orders of Japan, and 
our finance houses seem rather to have struck a bad 
patch in the Far East after the Japanese Naval bribery 
trials in June and July 1914, when the Japan Weekly 
Chronicle reported in full the extraordinary Mitsui 
case, wherein the Japanese Admiral Fujii was charged 
with accepting bribes to the extent of 40,000 from 
certain British armament firms. 

From Far East to Near East ! About the same 
period our c savings ' were in part diverted to 


strengthening the naval armaments of Turkey, as the 
following excerpt from the London Times (3/12/1913) 
bears witness : 

' A contract was signed to-day with the Armstrong- Vickers 
group for the reorganization of the Turkish Naval Dockyards. 
The Government hands over to the Armstrong- Vickers group 
the Arsenal and Docks on the Golden Horn, with all the exist- 
ing machinery and buildings. It likewise provides for a naval 
base at Ismid. The English group finds the capital for the 
exploitation of the works, and supplies the technical knowledge 
and control essential to the success of the undertaking.' 

Relatives of the British men who died a couple of 
years later at the Dardanelles, please note ! 

Again, British ships were sunk and British lives 
were lost in the Mediterranean Sea during the War 
by torpedoes fired from Austrian submarines. But 
were not the torpedoes manufactured in what had 
been the Whitehead Works at Fiume, Hungary, and 
had not Vickers been large shareholders in the concern ? 
And did not Mr. Philip Snowden (as he then was) 
say in the House of Commons in the course of his 
speech on the Naval Estimates for 1914 that : 

* Submarines and all the torpedoes used in the Austrian Navy, 
besides several of the new seaplanes, are made by the Whitehead 
Torpedo Works in Hungary. . . . 

And here beside me, as I write, is a copy of the 
prospectus for a new issue of capital to the great 
Czecho-Slovakian Steel Corporation, the Skoda at 
Plzen. The date is March 1926 ; the issuing house 
is the National Provincial Bank in London : the 
capital wanted is 2,500,000 5 the rate of interest 
offered is 7^ per cent. ; the money is wanted to 
develop what is described as ' the largest steel and 
engineering works in Europe in one ownership ' ; in 
the prospectus we are assured that the Skoda manu- 


factures steel ingots, castings, forgings, locomotives, 
gas engines, steam turbines, motor-cars, tractors, 
aeroplanes, and machinery of all kinds. So in 1926 
our money went to Czecho-Slovakia to stimulate 
cut-throat competition with our already hard-pressed 
steel and engineering industries. And the British 
and Allied Investments Corporation of London under- 
wrote (i.e. guaranteed) the issue. 

In the same year, the German city of Hamburg 
applied for a loan of 6 per cent., offering 100 scrip 
for every 93 los. paid, whereupon there was a rush 
for participation by the money lords of the London 
market ! The loan was subscribed several times over 
within a few minutes of the lists being opened. 

And again in October 1926, Belgium applied for 
a loan, offering 7 per cent, interest and 100 scrip 
for every 94 paid. This time the City was frantic. 
It actually offered between 200,000,000 and 
300,000,000, and one applicant alone offered 
30,000,000. 1 

But when in March 1926, the British Dominion of 
New South Wales sought a 4,000,000 loan at 5 per 
cent., she could only get one-third of her request ; 
and when in the following September she tried again, 
offering 5 per cent, and 100 scrip for every 97 paid, 
only 15 per cent, of her loan was subscribed by the 
Empire patriots of the City. 

Sir Arthur Salter, K.C.B., lately Director of the 
Economic and Finance Section of the League of 
Nations, and (prior to that) Secretary to the British 
Department of the Supreme Economic Council, has 
released some not-to-be forgotten material from his 
dossier. 2 He tells us that in the two years, 1927 and 

1 Manchester Guardian, October 28, 1926. 

2 Recovery, by Sir Arthur Salter, K.C.B., pp. 101-5. 


1928, which immediately preceded the depression, 
Germany borrowed from British and American 
investors over 2000 million dollars (say 400,000,000) 
or more than Jive times the amount payable in reparations. 
In the same period, South America and Australia 
were both heavy borrowers. And in an inquiry held 
subsequently by the Finance Committee of the 
American Senate the allegation was made that 
* $415,000 has been paid to a son of an ex-President 
of Peru, for his assistance in floating loans of the total 
value of $100,000,000 for the account of the Peruvian 
Government.' x Further references to the matter 
appear in the Times (23/11/33). 

But to return to Sir Arthur Salter and his disclosures. 
That distinguished civil servant declares : 

* When hostilities broke out between Bolivia and Paraquay, 
both League members, in December 1928, their recent financial 
history was naturally looked into in view of the possibility of 
financial pressure being needed in accordance with Article 16 
of the Covenant. An interesting fact emerged. Some little 
time before a foreign issuing house had arranged a substantial 
loan to Bolivia, nominally for the construction of railways and 
similar purposes. A few months afterwards it became known 
that the money had been expended, not on roads, but on arma- 
ments. In spite of this, a further loan was then arranged 
through the same issuing house when the last preparations 
were being made before the action against Paraguay. The 
point of this incident is not that it is exceptional but, on the 
contrary, that it is difficult to say that it contravenes generally 
accepted standards.' 

And he sapiently comments that : 

* When a Government is tempted to rash adventure it is easy 
to realize how greatly the temptation may be increased if, 
at the crucial moment, a large loan is dangled before its eyes 
by foreign financiers.' 

1 Times, 9/1/33. 


And here are other glimpses from Sir Arthur Salter 
of the glories of the dissipation of thrift system. 

* The investor is now suffering from the Brazilian Mora- 
torium. He would find it instructive to inquire where his 
money had gone. Since the war, the Brazilian Federal Govern- 
ment, States, and Municipalities have issued long-term loans 
abroad amounting to about $800 million. These include sums 
provided in 1924 for the bodily demolition of a hill in Rio at a cost of 
about $15 million ; $25 million in 1922 for electrifying the Central 
Railway of Brazil, which has not been electrified ; $20 million or more 
for a (Rio Claro) water supply scheme which has to all intents and 
purposes been abandoned in favour of another scheme. 

* The record of Columbia is even more instructive. Between 1924 
and 1928, it borrowed about $/jj? million. A large part of this was 
devoted to constructing a railway to connect two valleys separated by a 
range of mountains about 9000 feet high. There was no commercial 
justification for it, since both valleys had their own outlet to the sea. A 
very expensive tunnel through the top of the mountain range was begun 
and then abandoned ; and while the Federal authorities were driving 
a tunnel through the mountains the local authorities were making a 
costly road over them. I have had a vivid account from one who 
was in Columbia at the time, of the way in which the offers of 
competing lenders resulted in the public authorities incurring 
greater and greater obligations for these extravagant ventures. 
. . . Numerous operations of a similar, or worse, character 
could be quoted from the financial history of Europe in the 
last decade.' 

And as Lord Beavcrbrook stated in a public 
speech in Edinburgh in January 1932, our finance 
houses had been discovered borrowing in London 
at 3 per cent., lending to Germany at 8 per cent, 
(the astute Germans in turn lending to Russia and 
Austria at 12 per cent.) ; and when Germany was 
unable to repay, the City set up a unanimous demand 
that the British Treasury should cover up their (the 
City's) disastrous speculations. And not only that, 
but with no little impudence they contrived to divert 
attention from their folly and greed by blaming the 


resultant finance crisis upon the unfortunate un- 
employed and the extravagant weekly dole they were 
alleged to be receiving. 

This admission by Lord Beaverbrook, that one of 
the prime causes of the panic of 1931 was reckless 
lending to Germany, had indeed previously been 
made in the Report on Empire Monetary and 
Financial Policy published jointly in October 1931 
by the Federation of British Industries and the 
Empire Economic Union. There we were told 
that : 

* Confidence in the stability of our position began to be shaken 
when it was realized how seriously the support we had given to 
various weak positions, more particularly in Austria and Ger- 
many, had depleted our own liquid resources.' 

And the Royal Institute of International affairs 
published in 1933 a Report of an influential Com- 
mittee under Sir Charles Addis l which declared (p. 6) 
that Great Britain had gradually drifted ' into borrow- 
ing short and lending long, and so putting herself 
into a position in which she was no longer mistress of 
her own financial destiny.' 

The precise amount of this short-term British 
money lent to Germany is difficult to discover. .The 
Monthly Review of Lloyds Bank for October 1931, 
while minimizing as far as possible the effect of the 
locked-up British cash and credit in Berlin, admitted 
that there was a net amount of c about 70,000,000,' 
and that 

' the fact that Germany was unable to repay London no 
doubt added to the general feeling of distrust.' 

Mr. Beaumont Pease, the Chairman of Lloyds 
1 Oxford University Press. 


Bank, addressing the Newark Chamber of Commerce 
in the succeeding month, 1 declared that the amount 
of British credit given by British bankers to Germany 
during the crisis had only been ' normal,' and he 
quoted the Basle Committee which showed that 
British credits to Germany amounted to 20*4 per 
cent, of Germany's total credits from abroad. 

Subsequently the Economist put the frozen advances 
to Germany from the London Money Market at 

But there is ample evidence that even while the 
Labour Government was in the financial rapids and 
while there were steady press campaigns in full blast 
about an adverse trade balance, the London Money 
Market was quietly but persistently exporting credits 
to Germany. 

On November 28, 1930, the Times explained how 
the German manufacturer was enjoying cheaper 
credit from the London Money Market than was 
being given on overdraft by British bankers to British 
manufacturers. That newspaper declared that out 
of 250,000,000 of acceptance credits given by 
London * it is safe to assert that 75 per cent, is granted 
to foreigners,' and these foreigners moreover start 
with a credit of three months : when the three months 
have expired, they receive a renewal from another 
acceptance house ; when the second three months 
have expired, the credit is again renewed by still 
another acceptance house and always at a lower 
rate than bank overdraft rate. By this method the 
foreign exporter is enabled to get a two years' credit 
from London and to give a two years' credit to his 
customers in other lands, and these facilities were 
granted the foreign exporter by the London Money 
3 Times, 14/11/31. 


Market at a total interest figure of i per cent, 
less than the bank overdraft rate of 5 per cent., the 
minimum rate upon which the British exporters were 
then operating. 

The Times goes on to give a list of German and other 
continental exports which had been financed by the 
London Money Market * during the past few months.' 
The list includes : 

' Coal ; Steel ; Machinery (including locomotives, cranes, and 
ploughshares) ; Potash, Cement* Paper, Wood Pulp, Books, Hosiery, 
Cutlery, Shoe Leather, Fire Bricks, Furs, Watches, Champagne, and 
Sugar. 3 

This, of course, was all in the ' ordinary way of 
business. 5 And while it is true that much of our 
world trade is three cornered (or more than three 
cornered), silk from China to America being paid 
for by exports of cotton from Lancashire to China, 
and so on, the fact remains that British savings fre- 
quently finance foreign manufacturers upon cheaper 
terms than home manufacturers are financed. More- 
over, there is an irresponsible selection of investment 
and frequently the selection is in direct antagonism to 
the national interest. 



' We do not hope to protect the born gull from the born 
crook.' ' Britain's Industrial Future/ Liberal Tellow Book, 
p. 87. 

' I venture to challenge a denial from any responsible person 
acquainted with the public borrowings of the years 1926-8, of 
the assertion that, with the exception of loans recommended by 
the League of Nations and the Central Banks, the bulk of the 
foreign loans in these years to public authorities in debtor 
countries would better not have been made. . . . The dead 
weight of these wasteful loans was a major factor in causing the 
financial crisis of the same kind as reparations and war debts.' 
Recovery, Sir ARTHUR SALTER, K.C.B. 

DURING the Great War the Government set 
up what was called a Capital Issues Committee 
for the purpose of scrutinizing all offers to borrow 
money from the public upon long-term loan. This 
Capital Issues Committee, after consideration of an 
application for leave to make a public issue, made a 
recommendation to the Treasury that the applicant 
should be either granted or refused the right to make 
a public appeal. And the Stock Exchange having 
passed regulations to forbid dealings in stocks which 
had failed to secure a licence from the Treasury, there 
was, on the face of it, an effective national means of 
preventing the flotation of both unnecessary and 
fraudulent companies. 



In February 1919, this Capital Issues Committee was 

' with a view to preserving capital during the reconstruction 
period for essential undertakings in the United Kingdom and to 
prevent any avoidable drain upon Foreign Exchanges by the 
export of capital, except where it is shown to the satisfaction 
of the Treasury that special circumstances exist.' 

But in practice there was a heavy leakage, and 
Capital issues, forbidden on the Stock Exchange, 
were openly operated by outside brokers, to the manifest 
disadvantage of members of the Stock Exchange. 
And there were in addition allegations freely made 
that issues officially prohibited in Britain were floated 
on the Continent and their shares thereafter peddled 
in this country. Instead, however, of seeking to plug 
up the holes in the control system, the Government 
weakly abandoned its supervision of the Home Capital 
Market altogether and threw the Market open again 
to every adventurer and speculator who came along 
with a rubbishy flotation. The results in post-War 
boom years we have already seen hundreds of 
thousands of British investors picked bare by rogues 
and cheats. 

So far as long-term loans abroad are concerned, the 
Treasury has, however, struggled to maintain a sort 
of unofficial embargo exercised through the Governor 
of the Bank of England. Applications submitted to the 
Governor are shown to the Treasury, and if the 
Treasury objects, the Bank of England refuses ' facili- 
ties. 9 But this indirect, third-party, persuasion system 
is insufficient and inadequate ; despite it, large volumes 
of money have been invested abroad at times when the 
investments were patently against the national interest. 
As an example, in the first six months of the year 1931 
when the Government was seriously concerned that 


the Exchanges were going against the country and 
while the unemployment figures were clearly on the 
increase, nearly two-thirds of the issues in the London 
Capital Market were for overseas account 9,000,000 
for foreign loans and 35,500,000 for Indian and 
Colonial loans. During the previous year, 1930, 
foreign loans on the London Capital Market were 
35,500,000, Indian and Colonial loans 61,500,000, 
and in addition 15,500,000 of overseas loans were 
introduced on the Stock Exchange ; a grand total for 
the year of i 12,500,000. Yet, according to the Board 
of Trade, our balance on international account, i.e. 
what sum we could afford to lend overseas in 1930, 
was only 39,000,000 ; and in the first six months of 
1931 it was nothing at all. 

In an endeavour to grapple with some of the evils 
of the great post-War money ramps, the Liberal 
economists, notably Mr. J. M. Keynes, proposed the 
formation of a National Investment Board. 1 This 
Board, as the Liberals conceived it, was to be formed of 
a committee of State nominees functioning under the 
general direction and control of the Chancellor of the 
Exchequer (in effect the Treasury), and its primary 
duty was to be the collection into one single fund of all 
the capital resources presently in the hands of various 
Government Departments, and including the assets 
of the Post Office Savings Bank and the National 
Insurance Funds. The Board was also to issue State 
bonds at lower interest rates to supplant the existing 
higher interest-bearing national debt. It was to 
finance all the Government Departments, allocating 
to each (or rationing each with) such proportion of the 
pool as the Government might decide. With whatever 
new monies might be invested with it through the Post 
1 See Britain 9 s Industrial Future (Bcnn), pp. 1 1 1 et seq. 


Office Savings Bank and other channels, it was to 
finance public utility corporations, agricultural credit 
corporations, land banks, railroads, building societies, 
co-operative societies, garden city companies, and the 
like, upon c terms to be mutually agreed.' 

But curiously enough there was no mention of the 
financing of municipal loans, although after the Hatry 
adventures in Municipal Finance, some at least of the 
Local Authorities would seem to be as much in need 
of an adequate supply of cheap credit, and as much 
in need of protection from crookery in the money 
market in the procuring of it, as are Public Utility 
corporations, Building Societies, and the Garden City 

Finally, as the Liberal economists visualized the 
scheme, the National Investment Board was to have 
power of selection and veto over the issue of public 
loans for oversea countries. 

While Mr. Keynes and his friends are entitled to 
full credit for the work they did in formulating their 
scheme for a more rational use of our national savings, 
the functions they proposed for the National Investment 
Board were so limited as to be open to many serious 
practical and economic objections. To begin with, 
they omitted to place in the forefront, the safeguarding 
and protection of the small investor from the shark, 
through a visaing of the new capital issues ; they 
omitted to safeguard the municipalities (the biggest 
public borrowers) : they unnecessarily interfered with 
the work of the National Debt Commissioners ; and 
their proposal to issue National Investment Bonds for 
all sorts of enterprises not State owned, would speedily 
land any Government which sought to operate the pro- 
posal in a vast crop of credit trouble. 

But the Liberal economists certainly popularized the 


idea of a reasoned and directed planning of the capital 
resources of the nation, and even some of the leading 
defenders of the present system of private enterprise 
speculation with other people's money swung round to 
support them. Thus Mr. Hartley Withers declared 
that if the choice lay between the provision of capital 
facilities for engineering and shipbuilding, and 

' a company that wants to start an aeroplane service between 
London and Brighton for the idle rich,' 

he was all for engineering and shipbuilding. 1 

And at a later date when the Labour Party had 
adopted, or rather adapted, the scheme, we find Mr. 
W. W. Paine, a director of Lloyds Bank, writing in the 
Banker for November 1928 giving strong support for 
some interference with what he describes as 

' The waste of our national resources by the many wild-cat 
schemes with which we are now familiar.' 

Mr. Paine feels c some sympathy ' with the Labour 
Party's demand for 

* such changes in the banking and financial system as will 
secure that the available supply of credit and savings shall be 
used for enterprises of national advantage as distinct from those 
which are useless or socially injurious.' 

That demand is for a ' laudable object.' And he 
sees going on around him * the promotion of such 
undesirable ventures as greyhound racing associations 
and similar enterprises which are a hindrance rather 
than a help to the creation of national wealth.' 

It happens * not infrequently,' he adds, that when 
one bank in the public interest refuses * to allow its 
name to be associated with an issue ' another bank 
' is perfectly ready to take its place. Such is the stress 
of competition ' ! 

1 War-Time Financial Problems, Hartley Withers, p. 103. 


And so something must be done, he concludes, to 

* some of the attractions by which unscrupulous promoters 
inveigle the more ignorant sections of the community into 
investments which are neither for their own nor the Nation's 

But not, a National Investment Board. No, not that. 
The Nation must not be permitted to Interfere so far 
as to place ' any undue check upon enterprise or even 
upon speculation.' The farthest Mr. Paine is prepared 
to go is to set up a joint-committee of the banks and the 
Stock Exchanges with power to placing an embargo 
upon any undesirable issue of new capital. It would be 
for the City and not for the Nation to decide. Mr. Paine 
does not go far, but he moves. 

In recent years the Labour Party has taken up the 
running for a National Board of Investment, and there 
have been an almost infinite variety of suggestions as 
to the functions which ought to be entrusted to such a 
Board. Possibly circumstances which we cannot yet 
visualize will determine the powers which a Labour 
Government would propose to give an Investment 
Board. But it is already clear that whatever backing 
a Board would receive from the general public would 
arise largely from any powers it possessed to examine 
prospectuses and withhold certificates from crooked 
companies or from companies where the promotion 
and goodwill expenses, being unduly heavy, would 
be likely to sink the concern and lose the investor his 
capital, or from a company whose objects would be 
patently injurious to the National Interest. 

If a licence or certificate were refused by the Board, 
the promoters could be compelled to announce that 
they had been refused, and investors who thereafter 


* plunged ' upon the stock would do so at their own 
risk. Furthermore, the refusal of a certificate by the 
National Investment Board would of itself be a serious 
handicap to a company and cause it to pay more for its 

But the Board would give no guarantee of soundness 
of administration, or of certainty of dividend ; it would 
accept no financial responsibility to the investor ; all 
it would do, and all it ought to do, would be to warn 
the investor betimes. Mr. E. H. Davenport, in the 
New Statesman (10/10/31) tells us that in the promotion 
of the average new company, some 10 per cent, of the 
capital goes in the expenses of the issue and 50 per cent., 
not in providing new capital, but in making a present 
to the promoters and vendors of cash for the purchase 
of c existing rights/ 

A Board of National Investment would, however, 
surely refuse licences on grounds other than suspected 
fraudulency or overheavy gratuities to the vendors ; 
for example, (a) it could refuse a licence on the ground 
that there was already a sufficiency of capital in the 
particular business or industry for which the new com- 
pany was being promoted ; or, (b) that it was un- 
desirable in the national interest to divert the available 
public savings in a particular year to, say, a greyhound 
racing corporation, while Oil from Coal was starved, 
or to a Vickers Aeroplane loan for the Chinese War 
Lords while so many of our water supply arrangements 
were dangerously insufficient. Mr. E. H. Davenport 
has described for us 1 the hurtful effect of .superfluous 
flotations upon an industry. How 

' the promotion, for example, of unnecessary silk companies 
brought about such an excess capacity of plant that Gourtaulds 

[ New Statesman, already cited. 


had to embark upon a policy of cutting prices to an unre- 
munerative level in order to force the redundant companies into 
liquidation and their plant on to the scrap-heap. Much the 
same occurred in the safety glass and gramophone industries.' 

There can only be a certain proportion of savings 
available annually for new public issues whether 
foreign or domestic. Mr. Davenport declares that about 
38 per cent, of the national savings are normally 
ploughed back by employers and companies as un- 
distributed profits in their own businesses ; then there 
are building societies and mortgage institutions which 
gather savings for special and specific purposes, e.g. for 
the building of houses for their members. These two, 
the reinvestment in the employers' business and the 
saving for the specific purpose, absorb between them 
about half of our annual national savings. The long- 
term capital market takes the other half, and here there 
is no control, no regulation, no sense of priority or 
consideration of national advantage or usefulness. 
Simply chaos and anarchy. As Mr. Davenport says : 

* The company promoters and the issuing houses float just 
as many issues as they think the investing public will stomach.' 

Municipality may be bidding against municipality 
and public utility against public utility, while some 
crook operator or some foolish operator empties the 
market and raises the rate of interest for the bona fide 

But if the new capital issues in the home market are 
more or less a chaotic scramble in a mist, with the 
nation and the municipality and the investor all bad 
losers, what of the new capital issues for overseas ? 
Sir Arthur Salter from his unrivalled perch at the 
Finance Department of the League of Nations has 
witnessed the sheer folly and waste of the foreign loan 


as it is manipulated and juggled with to-day. He 
assures us that, in two years, the bulk of all foreign 
lending to public authorities in debtor countries (out- 
side the loans recommended by the League of Nations 
and the Central Banks) was completely and irretriev- 
ably lost. 

Sir Arthur Salter urges strongly that the control of 
foreign lending to Government public authorities 
should be an international control and ought to be 
vested in a Joint Committee under the auspices of the 
League of Nations. Certainly international control 
would tend to prevent an international scramble 
among borrowing nations for foreign capital, and 
would possibly do much to limit wasteful expenditure 
upon armaments. 

But before there can be any international decision, 
clearly there must be some national estimate of what 
amount a nation can afford to lend, either for home or 
foreign issues or both, in any given period. It ought 
to be the business of the National Investment Board 
to make such an estimate, and having made it, to do 
its utmost to see that the capital market monies 
were not allocated recklessly as they are so allocated 
to-day, a superfluity to one industry, a scarcity to 
another, a glut in gramophones and nothing for piers 
and harbours ! 

Every British Government in recent years has been 
at its wits' end to know what to do with the derelict 
industrial areas. There great public investments of 
capital are already sunk in water and in drainage : 
in houses, railways, gasworks, shops and amid a 
miserable, cowed population with its hands in its 
pockets and no prospect of anything but a continuance 
of public assistance. There must surely be a con- 
siderable number of instances where a National 


Investment Board, perhaps by threatening to forbid 
otherwise the issuance of licences to public companies 
to raise capital, might usefully divert new industries 
into the derelict areas, and by so doing save vast 
populations from ruin, and many millions of usefully 
invested money from complete loss. 

If and when a National Investment Board had been 
satisfied that the capital necessities of the home market 
were adequately settled, there could then be allocations 
recommended for the Dominions and the Colonies, 
and when domestic and Dominion and Colonial needs 
had been met, the Board, in association with the 
Finance Department of the League of Nations, could 
then allocate what savings remained to foreign 

It is no use saying, as some muddle-throughers do, that 
the nation would not be likely to succeed in any attempt 
at the substitution of national planning for private 
anarchy, and that anyhow capital will always flow 
where it gets its best return. That is simply arrant 
nonsense. Even to-day (1934) the Treasury restricts 
public lending to foreign governments, and induces 
the Bank of England to make things as difficult as 
possible for British lenders desirous of placing a new 
loan abroad, unless the Government is satisfied that 
the loan is in the British National interest. In April 
1933 the Government only gave approval to a loan 
of 1,000,000 f r the construction of a bridge in Den- 
mark upon condition that materials for the bridge were 
purchased in this country a most reasonable and 
sensible stipulation ! 

To the extent then that the Governor of the Bank 
of England, on behalf of the Treasury, seeks to inter- 
pose limitations and priorities upon foreign lending, 
there is already interference with the c natural flow ' ; 


and to the extent that the Governor of the Bank of 
England to-day fails to prevent undesirable capital 
investment abroad, there is manifest need of a National 
Board with more than * unofficial ' powers. 

Nor can it be reasonably argued that capital invest- 
ment will always go where it gets its best return. For 
effective answer to such a contention listen to the 
annual wail of the Council of Foreign Bondholders, or 
read Sir Arthur Salter. And it is, I believe, a fact that 
when the Credit Anstalt Bank of Austria collapsed in 
1931 and a creditors' meeting was called in London, 
every single bank in the City was represented ; so that 
it would appear as if they had all been separately and 
successfully tapped by the Viennese ; all had lent and 
all had lost. 

There are, however, some writers who believe that 
a National Investment Board in order to be completely 
successful must do more than (a) warn private investors 
against booby traps, and (b) exercise control of capital 
investments in the national interest. Such a Board, 
these writers argue, would require to exercise in 
addition at least indirect control over the long-term 
investments of insurance companies and building 
societies, and over the undistributed profits of industrial 
companies. 1 

There are still other writers who draw attention to 
the necessity for national control of the system of 
' private placings * whereby a financial house in London 
may buy up a complete capital issue of some new 
company, hawk it round the insurance companies, 
banks, &c., and then, through the medium of a 
friendly stockbroker, get the stock officially quoted and 
dealt with on the Stock Exchange. There were 

1 See, for example, The Control of Investment, by Colin Clark 


15,500,000 of such 'private platings' in 1932. No 
Investment Board could be completely successful in 
safeguarding the investor and the national interest so 
long as there remained such wide-open breaches in 
the walls, and while so many opportunities were still 
left for the financial raiders. 

Nevertheless, assuming that our control of new 
capital issues at home, and of long-term loans abroad 
the latter through an international League of Nations 
organization can be made effective, we shall surely 
have gone a long, long, way to canalize our savings, 
including the invested funds of insurance companies, 
building societies, and commercial companies, into 
channels of public usefulness ; and beyond a doubt 
we shall have greatly limited the area of anarchy and 
chaos in long-term financing. Whatever further steps 
then require to be taken will be so much the clearer. 

Moreover, as we shall see in succeeding chapters, 
the National Investment Board does not stand by itself 
as a complete policy. There are other proposals 
municipal banking, a rapid development of the Post 
Office Bank Service, a national ownership of the Bank 
of England and these proposals would still further 
limit the area in which High Finance disports itself. 
And we may as well face the fact that we shall but multi- 
ply, and that unnecessarily, our initial difficulties if we 
attempt to throw in as extra campaign luggage, a 
compulsitor upon public companies to invest their re- 
serves in such a manner as they, the companies, do not 
approve and will strenuously and desperately resist. 

The National Investment Board is designed to lessen 
the opportunities for robbing and plundering investors. 
It is designed to secure priority in finance for our 
essential industries. It is designed to eliminate crises 
and panics ; at any rate, it is designed to eliminate 


such proportion of these crises and panics as can be 
traced to the flooding of our national savings upon 
concerns and enterprises where further capital ex- 
pansion is clearly unnecessary, or where it is unde- 
sirable in the British National Interest. And such a 
Board we might get in the present state of public 
opinion. It is the first and most immediately necessary 
step in the march of mankind against anarchy. Let us 
take that step. 



' The Weekly Return is the only statement of accounts which 
the Bank of England publishes . . . this is really very remarkable. 
There is no balance-sheet, no revenue account, no Annual Report 
there is nothing whatever.' Sir Joseph Burn, Stock Exchange 
Investments : Lectures to Institute of Actuaries (1908), p. 25. 

* The dogs bark : but the caravan passes on.' Rt. Hon. 
MONTAGU NORMAN, Governor of the Bank of England (4/10/33). 

' When a bank lends, it creates credit out of nothing.' Trade 
Depression, p. 4, R. G. Hawtrey (Assistant Secretary to the 
Treasury) . 

AT the heart of the great skin game sits the Bank of 
England. Here is the very citadel of the Money 
Power. An anachronism in the twentieth century 
surely a private profit company but not obliged like 
other companies to file the names of its shareholders 
and their holdings with the Registrar of Public Com- 
panies : a private company whose ' Board of Directors 
is self-electing/ and whose older members form them- 
selves into * a standing committee of indefinite powers * 
against their younger colleagues : l a private company 
which possesses, apart from certain limited note issues 
by Scottish and Irish banks, a complete monopoly 
of the right to issue money notes in Great Britain : a 
private company which has the power to lend, and has 
in fact so lent, British credits to foreign countries 
credits not infrequently used for the creation of rival 
1 English Public Finance, Harvey E. Fisk. 


industrial enterprises to British enterprises : a private 
company whose directors, meeting in secret, can at its 
sweet will lower or raise the rate of interest for the loan 
of money to British industries : a private company of 
money lenders and money dealers placed in charge of 
the administration of British war loans, and indeed of 
every form of British State debt : a private company 
about which Members of Parliament are forbidden to 
put questions on the order paper of the House of 
Commons : a private company with such wide powers 
over the lives and futures of men and women as 
monarchs neither possess nor seek : a private company 
which holds the cash reserves, 85 per cent, to 90 per 
cent, of their total deposit liabilities, of the commercial 
banks, and, holding these reserves, is enabled to fix 
the volume of credit which, from time to time, is made 
available for industry. The Bank of England is there- 
fore a private company which has the supreme power 
of declaring whether prices of goods will be deflated, 
wages lowered, and unemployment intensified, or 
alternatively whether prices will be inflated and every 
one with a fixed income suddenly find his income 
diminished in value through a price rise ; a private 
company which, by its operations in bills or securities, 
buying or selling stocks in the open market, increases 
or decreases the market supplies of cash, * thus per- 
mitting an expansion or compelling a curtailment of 
the volume of credit ' ; l a private company with a 
capital of 14,500,000 upon which for each of the 
sixteen years prior to August 1921 a dividend of 10 
per cent, was paid ; in which for the succeeding year 
(1921-2) a dividend of 1 1 1 per cent, was paid : and in 
which for the period 1922 to 1932 there was an annual 
dividend of no less than 12 per cent. One might add, 
1 Central Banks, Kisch and Elkin, p. 107. 


as an additional point of interest, that the Bank of 
England is a private company whose governor when 
he goes on foreign travel, does so incognito, under the 
not wholly inappropriate cognomen of ' Professor 
Skinner' ! 

It is not suggested that the Bank of England is either 
inefficient or corrupt. On the contrary, by common 
consent, it is one of the most efficiently conducted 
business machines in the world ; its Court of Directors, 
as it is called, has had the wit to co-opt men like Sir 
Basil Blackett and Sir Josiah Stamp ; its clerical staff 
is employed upon a Civil Service basis ; and there has 
never been a whisper certainly not the production of 
any proof that the individual merchant bankers who 
dominate the Board have made illicit personal use of 
their prior knowledge of Government projects and 

But it is nevertheless impossible in the twentieth 
century for a democracy to permit financial domination 
by a handful of City financiers ; and it is intolerable 
that these financiers should be left in a position to 
thwart and obstruct the government of the day when- 
ever that government is bent upon removing any 
privilege or injustice in the State. Mr. Gladstone in 
his day suffered much at the hands of the Bank of 
England. In his own words : 

' From the time I took office as Chancellor of the Exchequer, 
I began to learn that the State held in the face of the Bank and 
the City an essentially false position as to finance. . . . The 
hinge of the whole situation was this : the Government itself 
was not to be a substantive power in matters of finance, but 
was to leave the money power supreme and unquestioned. In 
the conditions of that situation I was reluctant to acquiesce, 
and I began to fight against it by financial self-assertion from 
the first, though it was only by the establishment of the Post 
Office Savings Banks and their great progressive development 


that the finance minister has been provided with an instru- 
ment sufficiently powerful to make him independent of the 
Bank and the City power when he has occasion for sums in 
seven figures. I was tenaciously opposed by the Governor and 
the Deputy Governor of the Bank, who had seats in Parliament, 
and I had the Gity for an antagonist on almost every occasion.' l 

Mr. Lloyd George, too, gives his testimony : 

' These men (the City of London financiers) . . . establish 
a veto upon every proposal which is made for national develop- 
ment. We got rid of the veto of the House of Lords. Take 
care that you do not establish a more sordid one. If you go 
to the City of London, what is their only remedy for depression ? 
Their only remedy is by placing artificial barriers to prevent 
Plenty from reaching Want.' 2 

And in a press interview he added : 

' The City is the stronghold of reaction. All the time when 
I was Chancellor of the Exchequer up to 1914, I had to fight 
the City. . . . Talk about public control. It was that that 
saved the City in 1914. No Government will ever get a big 
programme through unless it is prepared to face up to the 
reactionary money interests in the City of London.' 3 

The main defence we have ever seen advanced for 
this control of our national savings and credit by a 
small secret private company of financiers is that the 
nation and its elected representatives being too unfit, 
too unintelligent, and too corrupt to own and control 
their own Central Bank, the small company aforesaid 
patriotically step forward and (for a modest 12 per 
cent, profit plus salaries) take control of our debts and 
credits from us. 

But in most other industrial countries the State con- 
trols its own financial business without provoking the 
disasters which the Money Power here declares would 

1 Morley's Life of Gladstone, Appendix, vol i. pp. 650-1. 

2 Speech, House of Commons, 12/2/31. 

3 Forward, 7/6/31. 


assuredly arise from State ownership of the Bank of 

The Bank might well, by the way, be re-christened 
the Bank of Britain when the old monopolists are given 
their pension books and told to go home. 

The Central Bank, the Riksbank, in Sweden, is 
state-owned. So is the Bank of Russia state-owned, 
as it was state-owned under the Tsars for a century 
or more. So are the Central Banks of Finland, Latvia, 
and Czecho-Slovakia. So is the National Bank of 
Bulgaria, the Banco De La Nacion Argentina, the 
Commonwealth Bank of Australia, the Bank of 
Uruguay, and the Bank of North Borneo. 

In Turkey, Estonia, Columbia, Mexico, and Bogota, 
the State is part proprietor of the Central Bank. The 
Department of Overseas Trade Report for 1932 de- 
clares that the Turkish Government holds all the * A ' 
shares in the new Central Bank. This Bank, which 
began operations on October 3, 1931, showed a profit 
on its first year's working. 1 

In Norway, Spain, and Chili, the Government 
nominates three directors. In Switzerland a majority 
of the members in the Central Bank directorate are 
nominated by the Federal Council of State. New 
Zealand has just decided to acquire similar powers of 
nomination. 2 

In Denmark, Holland, Poland, Greece, Hungary, 
Austria, Japan, and Rumania, the Government appoints 
a Commissioner with supervisory powers over the 
Central Bank. In the United States all net profits, 

1 The Observer's correspondent at Istanbul reports (3/12/33) that 
* The State-owned Sumer Bank has Ismet Pasha's favour, and 
aims at bringing the widest possible proportion of National 
activities within the scope of immediate State control.' 

2 Economist, 30/12/33. 


after a dividend of 6 per cent, has been paid, go to the 
United States Treasury. 

Apparently only in Great Britain and Germany 
among the great nations are the Central Banks com- 
pletely private enterprise concerns without even State 
nominees on the directorate and without statutory 
limitation of profits ; in the case of Germany this 
divorce from the State is clearly due to pressure from 
the greater Powers and the International banking 

Russia is rather in a category by herself. The State 
Bank of the U.S.S.R. has functioned since 1921 ; and 
in 1922 it received the right to issue chervontzi (gold- 
backed bank notes) . Its only capital to start with was 
a depreciated paper currency ; but by March i, 1932, 
it had accumulated a reserve of 372,000,000 dollars, 
backed by gold, platinum, and stable foreign currency ; 
and in addition it had a capital of 296,000,000 dollars. 
The system in Russia differs from the system elsewhere, 
because practically the entire trade of the country is 
in the hands of, or is controlled by, the State, and since 
the Credit Reform Act of 1930 in Russia, the State 
Bank has provided credits not to the selling organiza- 
tions, but to the buying organizations in the country. 
If not consumers' credit exactly, it is credit given to 
organizations which purchase rather than organiza- 
tions which produce. Until recently there was a small 
private industry for profit still operating in Russia, 
and that industry was catered for by Mutual Credit 
Societies or banks. On January i, 1929, there were 
223 of these Societies in existence, working with assets 
of 34,000,000 roubles. 1 But the private trade and 

1 Economic Review of the Soviet Union, 15/10/29, 15/11/29, and 
15/8/32. Bank for Russian Trade Review, January 1928 and June 
1930, and British Russian Gazette, October 1931. 


the private banking that financed it is now no longer 

In Sweden and in the Argentine to take only two 
tests, one in Europe and one in America there is no 
evidence whatever that State ownership of the Central 
Bank has been other than highly beneficial to the 

The Sveriges Riksbank, or Bank of Sweden, is com- 
pletely state-owned. 1 Ever since 1807 the Government 
has appointed the chairman of the Bank, but the other 
six directors are appointed by Parliament. The Bank 
has sole control of currency, and our Department of 
Overseas Trade reports annual profits (on a paid-up 
capital of 50,000,000 kronen) which averaged annually 
in the years 1925-9, over 18,000,000 kronen : all 
these profits being used in the State Budget for relief 
of taxation. Every political party in Sweden accepts 
the State Bank without question, and would as soon 
think of handing it over to a private profit group as it 
would think of handing over the Swedish navy to a 
shipping company. 

The State Bank of the Argentine Republic has been 
completely in Government ownership since 1904. Its 
annual profits are equally divided into new Bank 
Capital and the Reserve Fund. But profits are a 
secondary consideration to the promotion of trade. 

The Times Trade Supplement for June 18, 1927, 
declared that not only is the Banco de la Nacion in 
the Argentine wholly state-owned but the Government 
of the Province of Buenos Aires holds half the capital 
in the Banco de la Provincia de Buenos Aires, and 
these two banks between them carry 55 per cent, of 
the total deposits of the Republic and transact 50 per 
cent, of the loan and discount business in face of the 
1 Established in 1668, Banker's Almanac, 1933 4. 


most strenuous competition from European and 
American banking companies. The Banco de la 
Nacion with its 230 branches and agencies has as its 
established policy the assistance of trade and com- 
merce : it operated, as The Times noted, * on terms 
which do not profess to be chiefly with a view to profit- 
making.' Yet it made profits. And the Banco de la 
Provincia in the year 1926 made net profits of 6 J million 
dollars. The Banco de la Nacion was run to aid the 
nation and its citizens ' in case of need.' 

In 1928 The Times Supplement was even more flatter- 
ing in its comments. The Argentine's banking position 
now * depends upon the strength and good guidance 
of the Banco de la Nacion,' * and the Bank is ' un- 
trammelled by the necessity of earning dividends.' 
Moreover, it has * fulfilled its delicate functions with 
wisdom and tact,' and was ' well managed ' by a 
directorate of * safe and responsible men ' who were 
safe and responsible even although chosen by Govern- 
ment. Our Department of Overseas Trade 2 comments 
for the year 1932 that conditions in the Argentine had 
been difficult : some of the company banks had sur- 
vived with difficulty, but the Bank of the Nation took 
most of the strain and * now does nearly as much 
business as all the others together.' The Bankers 9 
Magazine (September 1928) admits that the Argentine 
State Bank has been c operated with a view to rendering 
the greatest assistance to the trading community.' 

The prophecies of flights from the pound and the 
prophecies of political misuse of the Central Bank under 
nationalization which the Money Power issues periodi- 
cally to the Press are thus proven, where the allegations 
can be tested, to be absurd and erroneous. They are 

1 Times Trade Supplement, June 30, 1928, p. ai. 

2 Report, 1933, p. 35. 


worse : they are impudent, for they assume that men 
who act for the State will act corruptly or foolishly, 
whereas men who work the lining of their own pockets 
will not ; they assume that the British people is so 
hopelessly stupid, gullible, and corruptible that it must 
not be permitted to nominate the controllers of its 
national credit or to control the management of its 
own debt-books, but must needs be elbowed aside by 
a small sub-committee of bankers and their nominees 
who graciously declare for themselves and their fellow- 
shareholders a dividend of 12 per cent, per annum in 
addition to their supervisory salaries. 

One other argument sometimes used against state 
ownership of the Central Bank in Britain, that needy 
governments might repair to a state-owned Central 
Bank for easy money by inflation, 1 is easily countered. 
In the first place, needy governments desirous of 
inflation will impose their will upon Central Banks 
of issue anyhow and whether their banks are publicly 
or privately owned ; in the second place, the State 
Treasury to-day has the statutory right under the 
Currency Bank Notes Act of 1928 of authorizing an 
increase or a reduction in the fiduciary note issue 
that is, the issue not backed by bullion or specie and 
can authorize the change for two years without con- 
sulting Parliament ; and in the third place, it would 
be an easy matter to prescribe regulations for publicity 
in all Government borrowings from the bank which 
publicity would enable Parliament to keep the Treasury 
advances and balances under close review. 

But what is the State to do with control of the Bank 
of England when it secures that control ? Is the present 
credit policy to continue unchallenged and the only ob- 
servable gains be some saving in dividends and a more 
1 See Central Banks, Kisch and Elkin. 


efficient regulation of the speculators and financial adven- 
turers through the Bank of England's grip upon the over- 
drafts and loan investments of the Joint Stock Banks, 
and through the Bank's grip upon the operations of 
the Discount Houses ? These are indeed in themselves 
great gains and may carry us far to a rational national 
use of our savings. But, even so, are they enough ? 

Must we not also arrange for a dispassionate and an 
exhaustive examination of the results of some previous 
issues of public credit for public purposes ? And, at the 
same time, must we not consider fully the various 
proposals presently being canvassed up and down the 
world for a better use of the credits which we can now 
secure upon our increased capacities to produce wealth? 


The Scheme for supplying social credit to consumers, 
propounded with gathering enthusiasm by the fol- 
lowers of Major C. H. Douglas, ought to be impartially 

Unfortunately Major Douglas has seen fit to re- 
commend his scheme to the opponents of the Labour 
Party as a barrier to the Labour Party's Socialist 
programme, and naturally, therefore, his scheme 
stands heavily prejudiced in the eyes of vast sections 
of the working classes. In the Nineteenth Century 
Magazine, for example, March 1925, Major Douglas 
declares that a grasp of his proposition * is the most 
formidable menace to orthodox Socialism with which 
that doctrine can be confronted.' But it would not 
appear as if Major Douglas has attracted thereby any 
countervailing support from the bankers and their 
political friends. Indeed, politically he seems rather 
to have contrived to make the worst of both worlds. 


His proposal if one may attempt a brief bald 
summary of it is that the steadily increasing produc- 
tivity of the nation should reach the citizens in the 
form of a direct dividend from the State. Having 
received their social credit dividend tickets (there is 
to be a close actuarial estimate of the amount of the 
increased production of goods during the year) the 
consumers take their tickets to the shops ; the shop- 
keepers then reduce their prices of the goods sold by 
the amount of the social credit tickets which the 
customers hand over to them ; and these social credit 
tickets will in due course reach the Bank of England 
where they will be cancelled simply written off 
at the order of the State. 

The theory is that this increase in consuming power 
will not involve inflation of the price of commodities, 
because there has been in fact a reduction in price at 
the point when the shopkeeper sold the goods, and this 
reduction is passed up through wholesalers and manu- 
facturers until it reaches the Bank of England. 

The shopkeeper reduces his payment to his whole- 
saler by the amount of his social credit tickets : the 
wholesaler similarly reduces his payment to the manu- 
facturer by the amount of his social credit tickets : 
the manufacturer gets credit at his bank for his tickets : 
and the bank gets credit at the Bank of England for the 
tickets it hands over. What has occurred is that an 
increased purchasing power in a given period has been 
passed on to the consumer, and through the consumer's 
increased demand for goods has stimulated employ- 
ment, instead of, as is the case to-day, an increased 
productivity in boots, cheese, umbrellas, or anything 
else, resulting in a glutted market and unemployment. 

The Douglas proposals have attracted considerable 
support in Canada, Australia, and New Zealand, and 


a recent (1934) tour in these Dominions undertaken 
by Major Douglas was conducted almost as if it were 
a religious ' revival.' He received official civic re- 
ceptions and had a tremendous press and wireless 
publicity. No doubt the vast crowds who turned out 
to cheer him and welcome him as the greatest economic 
discoverer of the century, had not the faintest under- 
standing of his A + B theorem or of his argument about 
the flaw in the present price system. But these, after 
all, are matters upon which the crowds could hardly 
be expected to construct a reasoned opinion. What is 
impressing hundreds of thousands of people in the 
world is the Douglas proposal for a national dividend 
whereby the increased productivity of man and 
machine can be readily distributed to consumers, 
and not, as to-day, permitted (first) to glut markets, 
and (second, and because of the glutted market) to 
limit production and throw the producers unemployed 
and among the non- (or limited) consumers. 

We are all familiar with the idea of a dividend by the 
Co-operative Societies. Every increase in efficiency 
presumably adds to that dividend. Why cannot every 
increase in efficient production similarly add to a 
national dividend and be distributed to the citizen 
consumers ? And if the claims of Major Douglas to 
have worked out a technique whereby such a distribu- 
tion of a national dividend can be made without an 
inflation of the price level are justified, then he has 
undoubtedly performed a service to humanity which 
entitles him to rank with Watt and Lister. True, the 
Douglas proposals do nothing to socialize ownership 
of the land and industrial capital although they 
involve the national ownership of the Bank of England 
and it is equally true that they do nothing to plan 
and organize national effort for national services, but 


if they provide, as their author claims they do, a work- 
able method of distributing the produce of a machine 
age, then no government, whether Capitalist or Socialist, 
in the twentieth century can afford to ignore them. 1 


In the black year of 1 793, the City Council of Liver- 
pool had to face a serious situation arising out of a 
complete collapse in the local private banking system. 
Employment was suspended, and shopkeepers had 
to shut their shops. 

On March 20, 1793, the Mayor reported that 
fifty-eight leading merchants had begged the Council 
to procure a loan from the Bank of England to enable 
the City to tide over the distress which had engulfed 
the people. 

The Council agreed, and asked the Bank of England 
for 1,000,000 for fifteen months. 

This request was refused by the Bank, but the 
Council's deputation to London induced Parliament 
to give them instead a special Act entitled 

' An Act to enable the Common Council of the Town 
of Liverpool in the County of Lancaster on behalf of 
and on account of the Corporation of the said Town 
to issue negotiable notes for a limited time and to a 
limited amount. 9 

1 For Douglas Scheme proposals, see Major Douglas's own 
writings, e.g. The New and the Old Economics ; Economic Democracy 
and Credit Power and Democracy (Palmer) ; also This Age of Plenty , 
by C. Marshall Hattersley (Pitman) ; and, from a Socialist point 
of view. Money and Wealth, by Louis Anderson Fenn (Williams & 
Norgate). Mr. Fenn, however, draws attention to the fact that 
consumer's credits alone will not do anything to promote a better 
planning or reorganization of industry. For Socialist criticism 
of Douglas, see Foundations for the World's New Age of Plenty^ by 
Fred Henderson (Gollancz). 


By this Act Liverpool could issue, c for value received 
or other due security,' notes of 100 and 50, to run 
for two years from May 25, 1793. 

These notes carried a rate of interest of 4, us. 3d. 
per annum. In addition, there were issues of 5 and 
10 notes to run for three years. These notes of smaller 
denomination bore no interest. The total issues were 
restricted to 300,000. 

There was a daily meeting of the Committee in 
charge of the issuing department, and we are told that 
the notes c seem to have been freely accepted in 
ordinary transactions.' l 

On February 28, 1795, the amount of notes on issue 
reached the figure of 140,390. 

Traders got advances on cotton, flax, silk, tallow, 
wine, timber, mahogany, pigments, iron, potash, 
coffee, hops, lead, whale oil, tar, copal, bills of ex- 
change, business premises, ships on the stocks, and the 
security of the Alt rates, but a request for a loan by 
Mr. David Paton and others, on the security of the 
Scots Kirk, was declined. 

At the end of the period of the Act 

* It was determined to apply for an extension ; but the 
request though forwarded was not hotly pressed, and its 
refusal neither excited resentment nor led to any serious con- 

As a result of the municipal note issue, however, 
the panic was stayed, failures were prevented, and the 
whole sum, with interest, was within three years 
recovered without loss. 2 

1 Economic Journal, 1896, pp. 484-7, article by E. C. K. Conner. 

* See also references to subject in English Local Government 
Vol. ' The Manor and the Borough,' Sidney and Beatrice Webb, 
p. 485. There the incident is described as * the boldest financial 
step recorded in the annals of English Local Government.' 



A century ago the propaganda speeches of the 
Radicals and the Co-operators were interlarded with 
references to experiments in the Channel Islands, 
where at Guernsey, a public market, schools, and a 
college had been built, a church repaired, and roads 
and coast preservation works made, all without any 
charge for loan interest. The most elaborate accounts 
of the Guernsey experiment are to be found in a 
London School of Economics Study, Communal Cur- 
rency, l and in a survey of the accounts published by the 
Jersey Evening Post on February 9, 1933. 

In 1815 the States (that is the local Parliament) of 
the Channel Islands were recommended by their 
Finance Committee to acquire property and build 
a public market, repair a church, and make roads, and 
to finance these schemes by the issue of local notes to 
the value of 6000. 

The notes were to be ' printed on the best paper . . . 
and from a plate engraved by the best artist, each note 
numbered and bearing the signatures of three men 
well known on the island.' 

On October 17, 1816, there was a first issue of these 
Guernsey notes to the amount of 4000, ' for coast 
preservation works, Torteval Church, and Jerbourg 
Monument.' The notes were to be redeemed and 
destroyed, so many every Saturday, and were to be 
completely taken off the market by April 15, 1818. 

In May 1820 the famous markets scheme was begun, 
4500 of notes being issued for the purpose, e redeem- 

1 J. Theodore Harris (King 6? Son). See also Howe's The 
Evolution of Banking (Kerr, Chicago), where photographs of the 
Guernsey notes and the public works are given. 


able in ten years out of import duties and the revenue 
from butchers' shops.' By September 1821 the total 
interest-free notes in circulation did not exceed 

There is a legend that when the new markets were 
opened, the Governor, Daniel de Lisle Brock, cancelled, 
by publicly burning them, a number of these notes. 
The local press of the period, however, has no reference 
to this alleged ritual, and the notes were probably 
taken off the market in a much less dramatic way, and 
quietly cancelled, as under the previous arrangement, 
from the import duties on wines and spirits, and from 
the taxes on the butchers' shops. 

So successful was the note issue scheme that, in 
March 1826, the Finance Committee of the States 
(Parliament) was authorized to issue additional notes 
to the total of 20,000 for the purpose of erecting 
Elizabeth College and of building certain parochial 

The Jersey Evening Post says that by 1837 over 55,000 
of interest-free notes were still in circulation 

* and in the Billets d'Etat frequent references are made by 
eminent men of those times that had it not been for the issue of 
States' notes important public works, such as roads and build- 
ings, could not have been carried out, and this was done 
without interest-costs to the Island, the result being that the 
influx of visitors was increased, commerce was stimulated, and 
the property of the Island vastly improved.' 

For the first ten years from 1816 the note issue 
scheme worked splendidly ; and there was no 
opposition. But after 1826 the voice of the Money 
Usurer was heard in the land. 

First, it was said that no capital works should be 
financed by State note issue, unless the consent of the 
King in Council were first obtained. 


Daniel de Lisle Brock, the Governor, spiritedly 
opposed this proposal, and it was defeated. 

Three years later the bankers appealed to the Privy 
Council in London, and that body asked De Lisle 
Brock for an explanation. The reply to the Privy 
Council was published in the Billet for December 23, 
1829, and is described by the Jersey Evening Post as a 
' masterpiece, 5 although the paper does not give the 

The bankers' next step was to issue big quantities 
of their own notes and flood the island with paper 
money, hoping to deluge and discredit the State 

One would have imagined that public opinion would 
have backed the anti-usury Governor and that he 
would have stopped the private bank issues altogether, 
under penalty of imprisonment to the bankers in the 
plot ; but apparently the financiers were strong 
enough in the year 1836 to secure an agreement 
whereby it was stipulated that the State notes in circu- 
lation were not in future years to exceed 40,000. 

And right down to our own time in 1914 the public 
issue remained at that figure. During the Great War, 
however, the need for money was so great that an 
Ordinance was passed allowing the issue to be in- 
creased, and to-day it fluctuates between 150,000 
and 200,000, * and is undoubtedly/ says the Jersey 
Post, ' a source of great benefit to the Island.' 

And note this : 

' A loan of 175,000 at 5 per cent., redeemable in thirty 
years, would cost the States annually n>383 in interest and 
redemption. Our note issue for approximately the same sum 
costs us 450 per annum ; so that it is up to every patriotic 
Gucrnseyman to use State notes in his local transactions, and 
by so doing, keep down taxation, which bears on each of us.' 


But it is not the amount of the saving to the Guernsey 
people that is the most important and most interesting 
feature of this amazing experiment : it is the complete 
absence of any allegation that the note issue inflation 
for inflation it was had raised prices of goods to the 
Islanders. Doubtless such an allegation, were it now 
to be made, would be incapable either of proof or of 
disproof ; but it is an indisputable fact that the Guern- 
sey tradition is altogether favourable to the public 
note issue and is wholly against the private bankers 
and money-lenders who sought to frustrate the ex- 


Professor Frederick Soddy, who has already won 
his laurels in Chemistry, has contributed greatly to 
modern thought upon the importance of national 
control of the issuance of money. 1 He declares that he 
was first attracted to the study of the problem of money 
by the writings of Mr. Arthur Kitson, who for a genera- 
tion was practically alone in stressing the importance 
of the subject. Professor Soddy's main contention 
is that the State, and the State alone, should issue new 
money, and that the banks ought to be permitted to 
lend 1 for 1, and no more than i for i, 
against deposits and securities actually in their 

When the privilege of creating money for their own 
profit is abstracted from the private banks and becomes 
the prerogative of the State, the banks will continue 

1 See Money versus Man ; The Inversion of Science ; Wealth, Virtual 
Wealth^ and Debt; The Wrecking of a Scientific Age, &c. For a 
criticism of part of Soddy's theory, his theory about fictitious 
loans, see Cole's Money, p. 375 et seq. 


giving other services to their clients, such as keeping 
their accounts, providing safe deposit facilities, &c., 
and will charge their clients a fee for so doing. 

The present writer finds Professor Soddy one of the 
very few authorities on Finance who has any concep- 
tion of the importance of the National Debt in our 
financial economy, or has any suggestion to make of 
a rational and feasible method by which that debt 
may be substantially reduced. Most other writers 
simply dodge the subject. But Professor Soddy has 
clearly shown that something in the neighbourhood of 
2,000,000,000 of our National Debt was originally 
fiction mere book-entry work. It is true that the 
present holders of scrip for these millions may have 
given up securities or property for their debt certifi- 
cates, and it will therefore be necessary for the State, 
somehow or other, and sometime sooner than later, 
to purchase 2,000,000,000 of debt scrip from its 
present holders, as and when the debt scrip comes 
periodically on to the market for sale. 

The State, says Professor Soddy, could purchase 
the debt with new money which the State itself and 
not the private banks would create for the purpose. 
The State would then immediately cancel the scrip 
it had purchased. And 2,000,000,000 of interest- 
bearing debt would thereby be supplanted by 
2,000,000,000 of non- interest -bearing debt (i.e. 
the new money), and the nation, in consequence, 
would be relieved of an annual burden of 100,000,000 
in interest. Since these estimates were made, the State 
has secured a conversion of a large part of the National 
Debt to lower rates of interest. The possible savings 
resultant from an application of Professor Soddy's 
scheme would therefore require amendment. 


The writings of the late Silvio Gesell are much n/ore 
widely known on the continent of Europe and in the 
United States of America than they are in Great 
Britain. Mr. Gesell, a German who made a fortune in 
South America, returned to Switzerland and spent the 
years of his retirement until his death in 1930 in pro- 
pagating a theory of ' interest-free ' money. Under his 
scheme, a public body which desired to undertake new 
public works, instead of borrowing money at interest 
for the purpose, would issue currency notes to the value 
of the new works. The currency notes are to decrease 
in value one-tenth of i per cent, per week, or 5 per 
cent, per annum. If a trader gets payment in a Gesell 
note and desires his note to retain its value, he must 
affix a stamp according to the length of time he has 
kept the note in his possession. As he does not desire 
to pay for and affix stamps, he does not hoard the 
money : he passes the note on quickly : he pays his 
bills or his taxes with it. The result is that the velocity 
of the Gesell notes is much greater than the velocity 
of non-depreciating money ; the Gesell notes, there- 
fore, operate more exchanges of goods : they stimulate 
both consumption and employment, and they preserve 
the community from great burdens of debt. 

It will be observed that there is some analogy 
between the Gesell depreciating money and our own 
Post Office practice of charging a commission equiva- 
lent to the original commission upon Postal Orders 
which are not cashed within three months of the date 
of issue. 

Experiments in the Gesell system have taken place 
it is alleged with most markedly successful results 


at Schwanenkirchen in Bavaria, at Steyr, and at Worgl 
in the Austrian Tyrol, where the National Bank of 
Austria has interfered and compelled a State prosecu- 
tioft of the Mayor of Worgl for an infringement of its 
note-issuing monopoly. 1 Professor Irving Fisher, of 
the Chair of Economics at Yale University in America, 
has written and broadcasted very favourable descrip- 
tive accounts of the Worgl experiment, and it is 
reported that as a result of his expositions over twenty 
towns in America have adopted Gesell methods and 
are now operating with interest-free money. 

1 See New Statesman, 2/12/33 ; Mr. Gaitskell in Cole's What 
Everybody Wants to Know about Money (Gollancz) ; Free Money, by 
J. Henry Buchi (Search Publishing Co.) ; and Professor Irving 
Fisher's Booms and Depressions (Allen & Unwin Ltd.), p. 226. 



* ... a very high degree of enterprise in operation. Indeed, 
we do not think it is going too far to say that the Savings Bank 
is ahead of any private concern in the adoption and development 
of office mechanization and labour-saving devices.' Report of 
Lord Bridgeman and his Colleagues Post Office Enquiry, Cmd. 4149 

AT the end of the year 1932 there were no fewer 
than 10,000,000 active deposit accounts in the 
Post Office Savings Bank and a sum of 305,712,000 
was due to the depositors. By October 1933 the 
estimated balance due the depositors, after allowing 
for accrued interest, was almost 325,000,000. 

Measured by the number of his customers the Post- 
master-General of Great Britain is the largest banking 
operator in the world, and prior to the trade slump, 
which drove large sums of money out of industrial 
use and into the keeping of the Joint Stock Banks, he 
was also the world's largest banking operator when 
measured by the amount of his deposits. In addition 
to the Post Office Bank, and also under Government 
supervision and working without profit for share- 
holders, there were in November 1932 the Trustee 
Savings Banks with almost 2^ million active accounts 
carrying deposits of over 202,000, ooo. 1 

1 The funds of both Post Office and Trustee Banks, after pro- 
viding for current requirements, are deposited with the National 
Debt Commissioners. The State guarantees the depositor in the 



The Post Office Bank has always, from Mr. Glad- 
stone's time until now, been hampered and crabbed 
bv the open or covert opposition of the Joint Stock 
Bai.sks, whose proprietors have succeeded in imposing 
many irritating prohibitions and restrictions upon its 
development. Down to the period of the war no 
individual depositor could deposit more than 50 in 
any one year in the Post Office Bank, nor could he 
have a total credit balance of more than 200 ; he 
could not draw a cheque upon his account : he could 
not pay in Scots bank notes or cheques at a Post Office 
in England : he could not pay in a coupon or dividend 
warrant, nor a cheque upon a foreign bank, nor a bill 
of exchange even if it were cashable on demand : he 
could not get a Traveller's Letter of Credit upon his 
own account. No interest was given him upon sums 
under i, nor for any sum for the broken part of a 
calendar month. 1 

Largely as a result of continuous Fabian Society pro- 
paganda several of the more obviously foolish of these 
restrictions have now been modified, and during the 
year 1933 a system of Travellers' Warrants and a 
system of Cruising Credits has been inaugurated. 
Travellers' Warrants for 3 each are payable at any 
Post Office without surrender of the Bank Book ; 
and Cruising Credits now enable a traveller on board 
a British ship to obtain Post Office Bank money 
through the purser. But there yet remains a series 
of senseless prohibitions and limitations, all of them 

former and the bank in the latter case. The depositor in the 
Trustee Bank is, however, further safeguarded by a State Inspec- 
tion Committee limiting expenses, etc., under the Savings Bank 
Act of 1891. 

1 How to Pay for the War, Fabian Research Dept. (Allen & 
Unwin Ltd.). 


carefully designed to prevent the development and 
full use of the State Bank in the national interest. For 
example, in March 1934 a depositor was still forbidde\ 
to deposit more than 500 in any one year, the re- 
striction being drafted with the clear object of drawing 
the larger depositors away to the private profit banks. 
Again, a depositor is not permitted to withdraw more 
than 3 at sight, even from the Post Office branch 
where he has lodged his money ; if he desires to with- 
draw more than 3 his pass-book must first be sent 
to London for the necessary authority. He is forbidden 
to pay money in to any other depositor's account unless 
at the same time he submits the pass-book of the 
other depositor. He may indeed apply for a crossed 
warrant upon his account and hand the warrant to 
his grocer or his tailor, but his grocer or his tailor 
cannot cash that crossed warrant at a Post Office : 
the warrant may only be paid into a Savings Bank 
account if the grocer or the tailor has one ; if not, 
he must get a private banker to cash the warrant 
for him. 

But by far the most irritating restriction of all is the 
absence of any cheque system as between the 10,000,000 
accounts in the Bank. 

Here is a Bank in existence with 15,000 branches 
and buildings, safes, and clerks all the machinery of 
banking. The security is absolute : all the funds 
invested with the Government, and the Government 
that is, the Nation guarantees repayment of the 
deposits on demand. Were a cheque system permitted 
as between the depositors, that is to say, if Depositor A 
might pay a debt to Depositor B by cheque, then when 
B paid in the cheque he had received from A all that 
would be involved would be a book-keeping trans- 
action in the Post Office, a mere diminution of A*s 


assets, and a corresponding increase in B's assets, by 
the amount of the cheque. 

If the recipient B were not allowed to withdraw cash 
for 'he cheque until it was first proved that the cheque 
was bona-fide and that A had assets against it (which 
would involve three days' delay, and indeed is no more 
than a private banking company has the right to insist 
upon before it cashes a cheque from an unknown 
source), the Post Office would be involved in no 
financial risk whatever. 

Ever since the year 1910 the United Kingdom Postal 
Clerks' Association has urged the adoption of a system 
of cheques upon Post Office accounts. In 1912, the 
then Postmaster-General, Sir Herbert Samuel, forbade 
the Association to engage in any public campaign 
on the matter, but the Association has nevertheless sent 
deputations to successive Postmasters-General urging 
inquiry, and in 1920 and 1921 the Executive of the 
Association collected and published a considerable 
amount of information as to the working of the system 
in other lands. In 1927 the Postmaster-General 
referred the subject to the Post Office Advisory 
Council, and a sub-committee of three (one a private 
banker, Mr. Robert Holland Martin) reported in 
March 1928 that 'at the present stage' a postal 
cheque system 4 on the continental model ' should not be 
embarked upon, but that apart from this continental 
model ' a tentative step should be made in the direction 
of offering cheque facilities for Post Office Savings 
Bank depositors ' ; the sub-committee was, however, 
divided as to the desirability of experimenting with a 
system of limited cheques for depositors 'with adequate 
balances.' l 

A system of limited cheques means that under it the 
1 Cmd. 3151 (1928), 


depositor could obtain 50 and 20 books of cheques 
in maximum limits such as 10, 5, 2, and i ; but 
as the minority member of the trio on the sub-com- 
mittee reported, this system was of little more use to the 
depositor in the Post Office Bank than the device, pre- 
sently within his power, of buying a bunch of Postal 
Orders in advance. The third member of the sub- 
committee, therefore, stood out for a system of 
unlimited cheques. 

Nothing, however, has been done by the Post Office 
authorities to put either the limited recommendation 
of the two sub-committee men or the unlimited 
recommendation of the third sub-committee man into 
operation. The report has simply been shelved, and 
the contemptuous way it has been treated by the 
Treasury, taken in conjunction with the persistent 
retention of the absurd and indefensible regulation 
which limits the amount of deposit to 500 in any one 
year, warrants us in saying that the Post Office Bank 
is still being deliberately crabbed. If the 500 limit 
were withdrawn and a cheque system permitted, there 
is no doubt whatever but that considerable deposits 
which presently rest in the hands of the private Joint 
Stock Banks would be immediately transferred to the 
Post Office Bank, and the State thereby placed in 
possession of vast funds at a lower rate of interest than 
it is even now compelled to pay. The rate of interest 
upon Post Office Bank deposits is nominally 2| per 
cent., but the rate is really less than that, for the State 
pays no interest on any balance under 1, and none 
upon any broken calendar months. The interest 
rate over all is, therefore, about s per cent, per annum. 
But on other borrowings from its citizens the State has 
since the War been paying over 5 per cent, and, even 
after the conversion to lower rates, 3^ per cent, on 


War Loan. To the extent to which the State could 
supplant 3^ per cent, money by 2^ per cent, money 
t^e State would clearly be the gainer. 

l!f it be contended that the 3^ per cent, money is 
long-term money and not repayable at call, whereas 
the 2j per cent. Post Office Bank money is repayable 
at call, the short answer is that the Post Office deposits 
grow steadily on balance year after year and are in 
fact and reality long-term money. The Post Office 
depositor does not readily ' run ' upon his own bank, 
even in times of panic ; and the disgraceful political 
ramp of 1931 made, all things considered, a wonder- 
fully small impression upon him. He is looking, not 
so much for a high rate of interest, as for security, and 
nowhere can he find better security than in a bank 
which is guaranteed by the entire assets of the nation. 

Other countries run a postal cheque system 
Austria (since 1883), Hungary (since 1890), Switzer- 
land (since 1906), Germany (since 1909), Belgium 
(since 1913), France, Italy, Holland, and Czecho- 
slovakia (since 1918). In the year 1926 Germany's 
Postal Cheque system showed a loss, but the systems 
in France, Belgium, Holland, and Switzerland showed 
a monetary profit. In Belgium, in the year 1929, 
there were 249,100 Postal Cheque accounts, and for 
the transfer of money from one account to another in 
Belgium no charge was made ; but for cheques payable 
to self or to a non-account holder (involving cash move- 
ment) a mere nominal charge of 20 cents, or less than 
one-third of a penny per cheque, was imposed. 

Assuredly there would be some book-keeping costs 
involved in operating cheques upon Post Office 
accounts, but these costs would be more than covered 
by the saving in interest which the State would make 
upon the additional money attracted by a cheque 


system to the Post Office Bank, and if it were considered 
desirable, there might be a charge imposed upon each 
book of cheques issued. But these are details, and i^ 
is in the highest degree important that the stijpid 
limitations which the nation has been induced to 
impose upon its own bank but not upon the private 
profit banks should be removed. With their removal 
State banking would be given a tremendous fillip ; 
and if simultaneously with their removal we had a 
national ownership of the Bank of England our private 
savings and our public borrowings for State purposes 
would no longer require to run the gauntlet of the 
Money Market. 



* It is a form of competition which I do not think is fair, as it is 
based on the credit of the community.' Mr. BEAUMONT PEASE, 
Chairman, Lloyds Bank, in Financial Times, 21/2/29. 

* Is this supremely successful experiment to remain unique ? 
Is Birmingham to have the sole monopoly of this fruitful idea. . . . 
Have we indeed reached the limit of what Municipal enterprise 
should be allowed to attempt, if we confine it to a single town ? 
For my part, I would as soon endeavour to imprison a volcano.' 
Rt. Hon. NEVILLE CHAMBERLAIN, in Preface to Britain's First 
Municipal Bank, J. P. HILTON. 

* You may call it Socialism if you like : I have never been 
frightened by a name. I do not care whether it is Socialism or 
not, so long as it is a good thing. ... It would be a good thing 
for the country if it should be further extended.' Rt. Hon. 
NEVILLE CHAMBERLAIN, in Birmingham Post, 18/6/23. 

AGAINST the menace of Municipal Banking 
the Money Power in Britain has set its flinty 
face. In several countries there have been successful 
municipal banking ventures. The city of Budapest, 
for example, has since 1876 run a municipal bank 
which transacts all the banking business for the 
municipality ; this Budapest Bank takes private 
deposits and grants first mortgage loans up to 50 per 
cent, of the value of property ; in form it is a Limited 
Liability Company, but the Municipal Corporation 
holds 98*3 per cent, of the shares, so that to all intents 

and purposes it is a complete municipal venture. 



There have been large municipal banks in Breslau 
and Chemnitz for many years, 1 provincial banks in 
the Rhineland and Westphalia, and a Clearing-House 
Bank in Germany the Kommunalbank serving over 
3000 savings banks, which were practically all depart- 
ments of local authorities. 

In Switzerland most of the twenty-two Cantons have 
what are known as Cantonal banks, but these are really 
public utility companies paying a maximum dividend 
of 4 per cent. Two-fifths of the capital in these 
Cantonal banks is subscribed by the Cantons and the 
other three-fifths by the private banks and the 

In Germany and in Italy there are many people's 
banks run on semi-co-operative syndicalist principles, 2 
and there are People's banks, Co-operative banks 
and Village banks, with varying constitutions and 
structures, in evidence all over the world. 

In Great Britain, of the larger local authorities, 
only one, Birmingham, has acquired statutory power 
to engage in public banking, all the other authorities 
being driven to the private money market for their 
loans. The venture at Birmingham did not succeed 
without a long and desperate battle with the private 
bankers ; and but for the determination and per- 
sistence of the Mayor of the city, Mr. Neville Chamber- 
lain, the bankers would have triumphed and the 
Municipal Bank been killed in its infancy. In public 
speeches the Mayor defied ' all the bankers in Lombard 
Street ' and his political influence was, fortunately, 
sufficiently great to secure banking powers for his 
city despite the strenuous opposition of the Money 
Lords, who were red with wrath even at the 

1 Knoop, Municipal Trading (1908). 

8 The Schultze-Delitzch and LuzzaUi systems. 


possibility of Birmingham getting clear of their 

But although the results of the Birmingham venture 
have been magnificent and unquestioned, and al- 
though Royal Personages now open new Municipal 
Bank premises, and although Mr. Chamberlain has 
twice been a Chancellor of the Exchequer, he has 
been impotent to get the same statutory powers as 
Birmingham secured thrown open to other local 
authorities in the country. 

As Lord Mayor of Birmingham in 1916, Mr. 
Chamberlain first carried a resolution for the in- 
auguration of a banking department by the Corpora- 
tion, but the City had at that time no legal power to 
operate such a resolution and it was compelled to 
seek powers for the purpose from Parliament. 

On April n, 1916, Mr. E. S. Montagu intro- 
duced a Bill in the House of Commons authorizing 
local authorities with a population of over 50,000 to 
establish municipal banks. Joint Stock bankers were 
seriously alarmed at this invasion of their preserves, 
and vehemently demanded that the Government 
should withdraw the Bill ; and the Bill without 
further ado was hurriedly withdrawn. Birmingham, 
however, persisted and another Bill was produced, 
though it was burdened with almost ludicrous handi- 
caps to its success. 

The Bill was called the Municipal Savings Banks 
(War Loan Investment) Bill, and, after much careful 
scrutiny and amendment by the private banking 
interests, was finally passed, on August 23, 1916. But 
when it emerged from the law-making machine the 
Act was found to be so restricted and pruned as to be 
practically useless. For example, clause I. (sub- 
section (a)) declared that no municipal bank should 


be allowed to take deposits direct from an investor, 
but that every investor should be a ' person in the 
employment of some other person ' ; the investments, 
moreover, had to be made through the employers 
' either by way of deductions from wages or otherwise.' 

By further restrictive clauses the money which any 
person could invest was limited to 200 ; with- 
drawals under seven days' notice were restricted to 
i ; all the bank's investments were to be made with 
the National Debt Commissioners ; and, finally, no 
local authority was to be allowed to start a bank unless 
it had a population of at least 250,000. As, if these 
restrictions were not sufficient, it was enacted that 
municipal banks were only to be allowed to operate 
for three months after the termination of the War. 

Birmingham was the only corporation which 
engaged in operations under this precious Act. But 
as the Treasury only allowed 3! per cent, to the Bank, and as 
the Bank paid 3^ per cent, for the money from its depositors, 
there was nothing left for working expenses. Naturally there 
was a loss in Birmingham, and a yell of triumph at that 
loss from the anti-Socialist Press. The Birmingham 
Municipal Bank of 1916 was, as the Manchester Guardian 
(August 30, 1916) truthfully observed, under sentence 
of death from its inception. The regulations imposed 
by the banking interests in Parliament had strangled 
the venture. 

Mr. Chamberlain, however, had no intention of 
allowing himself to be beaten in the first round by 
cheap money-lord tricks like that ; the City Council 
of Birmingham persisted in demanding a real, and 
not a bogus, banking charter, and in 1919 it promoted 
a private Bill and secured its passage through the 
House of Commons. The new powers conferred upon 
Birmingham included permission for the Corporation 


to engage in savings-bank deposit and house-purchase 
business, and freed the venture from most of the 
cramping and impossible restrictions of the Act of 

Under the new Act of 1919, Birmingham was 
permitted to carry on a Municipal Bank in accordance 
with regulations which might, from time to time, be 
prescribed or approved by the Treasury in London, 
and one of the regulations which these gentry either 
imposed or approved was that 50 per cent, of the 
Municipal Bank deposits must be invested in Trustee 
Securities (including War Loan) ; the balance of the 
deposit money only being available for the purposes 
of the Corporation of Birmingham. 

Despite all opposition, however, the Birmingham 
Bank has been a signal success, as the following figures 
show : 

v Balance due 

to Depositors. 

I 9 20 . . . 

1924 . . . 4,243.541 

1927 . . . 7,800,221 

J932 . . - 15,335,688 

The number of depositors in 1932 was 356,350, or 
about one-third of the total population of the city. 
The bank has succeeded in securing cheap money 
to the municipality ; it has acquired a huge surplus 
and reserve fund ; it possesses valuable property in 
its branch offices its chief office alone is valued at 
80,000 and costing the city ratepayer not a penny. 

There have been attempts made by other munici- 
palities in Britain to secure from Parliament similar 
powers to those now enjoyed by Birmingham. Swansea 
Corporation sought such powers in 1920, and the 


Corporation of Wigan sought powers in 1921, but 
Parliament, doubtless at the instigation of private 
banking companies, refused. Other corporations have 
had committees of inquiry, but after the rebuffs (to 
say nothing of the great cost of private bill promotion) 
given to Swansea and Wigan, they have been deterred 
from proceeding farther. In 1928 the City Council 
of Sheffield had promoted a Bill extending their 
powers, and one of the clauses in the Bill was for a 
municipal bank on Birmingham lines, but they were 
informed by the Treasury that unless the municipal 
bank clause was withdrawn from the Bill the Treasury 
would oppose it. 1 And on February 18, 1926, the 
Treasury, through Sir Otto Niemeyer, wrote to the 
agents who were acting for the Corporation of Bristol, 
declaring that unless a clause promoting a municipal 
bank were taken out of the Bristol Bill the Treasury 
would do its utmost to kill the Bill. It is clear that 
there is a well-trodden path between Whitehall and 
Lombard Street. 2 

On February 21, 1924, the Association of Municipal 
Corporations, after consideration of a report on 
Municipal Banking which had been signed by, among 
others, the City Treasurers of Bradford and Swansea, 
and the Town Clerks of Bristol, Derby, and Rother- 
ham, decided to press the Government for * a general 
Act ' enabling municipalities to set up banks on 
the Birmingham model. The Institute of Municipal 
Treasurers and Accountants also approved. 

1 Official Report, 22/2/28. 

2 By the year 1927 the following City Councils had endeavoured 
in vain to get powers similar to Birmingham Worcester, Smeth- 
wick, Middlesborough, Warrington, Bootle, Wigan, West Brom- 
wich, Cardiff, Rotherham, Walsall, Barnsley, Westham, New- 
castle-on-Tyne, Coventry, East Ham, Sheffield, Newport, Gates- 
head, and St. Helens. 


On November 17, 1926, the City Editor of The 
Times openly took the side of the larger municipalities 
against the Treasury and the City. He declared 
that such a city as Manchester should get power to 
run a municipal bank. ' There is little doubt/ he 
declared, ' that a considerable sum would accrue to 
the Municipality in interest through its proposed 
municipal bank.' But the Government, under 
pressure from the professional money-lenders, refused 
to yield. 

Meanwhile, without waiting for Parliamentary 
sanction, several publicly-owned banking corpora- 
tions had been started in Scotland. 

In the beginning of 1920 when I was Convener 
of the Law and Finance Committee on the Kirkin- 
tilloch Town Council, I succeeded in inducing a 
majority of the members of the Council to form our- 
selves into a Municipal Bank Ltd. We did not 
require any Parliamentary Powers to convert our- 
selves into a limited liability banking company. I 
had only to persuade a majority of the Council to 
agree to have the majority registered as a Company 
under the Companies Acts 1908 to 1917, and to 
agree that the Company when formed should be 
called the Kirkintilloch Municipal Bank Ltd. Once 
a Municipal Bank Company is registered its modus 
operandi is simple. The shares in the new company 
can only be held by members of the Council, and no 
member may hold more than one share, which he 
must give up to his successor when he demits office ; 
no profit or dividend is, or can be, paid on the shares, 
and no * director ' can get remuneration for his 
services. The cost of floating the company, provid- 
ing books, stationery, &c., is only about 40, and 
a loan for this purpose can be secured from the 


Common Good funds, or (in England) from the 
Mayor's salary and expenses, or in a dozen other 

The ' company ' being now formed and duly 
registered, contracts with the Council (i.e. its own 
members acting in another capacity) for the use of the 
Town Chambers, offices, safes, treasurer's staff, &c., 
for a nominal sum per annum. A name-plate is put 
up, ledgers and pass-books are purchased, and the 
bank is in being. 

The householders in the district are circularized, 
and public meetings are held to explain the ad- 
vantages of banking with the municipal bank. The 
working class is reminded that when it deposits money 
with the Post Office or any Trustee Savings Bank it 
only receives at the best 2-| per cent, interest for its 
money. All these Savings Bank and Trustee Deposits 
(a total of 527,000,000) are taken by the Govern- 
ment, and the Government, in turn, when it lends 
money to the local councils for housing and other 
purposes, lends at a profit. That is to say, the Govern- 
ment borrows the savings of the worker at 2^ per cent, 
and lends him back (through his municipality) his 
own money at rates which have run sometimes as 
high as 5 \ per cent. 

But now, and since 1920, in Kirkintilloch, the 
working class is invited to deposit its savings in its 
own bank. The depositor is offered 3 per cent, on 
his money that is \ per cent, more than the Govern- 
ment gives him through its Post Office Savings Banks 
and as the municipal bank is bound by its con- 
stitution to invest its monies only with municipal 
departments which have the security of the rates 
behind them, the savings of the worker deposited with 
the municipal bank are absolutely guaranteed. 


But to the thrifty citizen the benefits and advantages 
of municipal banking do not end there. When the 
municipality can get money at 3 per cent, (plus a 
fraction for the working expenses, salaries, &c., of 
the banking department) it can pay off the loans 
which it has previously borrowed at 6 per cent., or 
5^ per cent., or 5 per cent., and reduce the local rates. 
In other words, municipal banking to-day, by enabling 
the municipality to finance its departments upon a 
3 per cent, basis, not only gives \ per cent, in- 
creased interest to its citizen depositors, but it 
reduces rates and enables municipal departments to 
supply cheaper commodities and services to the 

The Kirkintilloch Municipal Bank does not only 
deal in ordinary savings bank business : it also deals 
in deposit receipts, and the rate of interest paid upon 
deposit receipt money is always \ per cent, over the 
current rate of interest paid by private banks. Thus, 
if the private banks are giving 2 per cent, for a given 
month, the municipal bank deposit receipt rate is 
automatically 2| per cent. ; if the private bank rate 
is i \ per cent., the municipal bank rate is 2 per cent., 
and so on. 

Before the municipal bank was instituted, the Kirk- 
intilloch Town Council was frequently compelled to 
go to the private banks for an overdraft, and the 
overdraft rate of interest was always 2 per cent, above 
the rate paid by the banker to his depositors. Now, 
however, the Town Council gets its money from the 
municipal bank at the exact sum (plus, as I have 
already said, a small annual fraction for working 
expenses) that the bank has paid, or is due to pay, its 

At the end of the year the manager of the municipal 


bank balances up his books, finds how much he has 
paid in interest, how much more is due to depositors, 
and the exact amount of his working expenses. He 
adds these three sets of figures together, and presents 
the bill to the Town Council. He adds no profit for 
the bank department, since the bank desires no 
profit and, making no profit, the bank pays no income 
tax. Nor can the bank ever sustain a loss, for the 
Council takes all the bank's money and meets the 
bank's charges. 

To the Town Council the gains are remarkable, 
and at least 3d. per on the rates is being saved 
every year. In the year 1922 (the third of its exist- 
ence) the Kirkintilloch bank had 17,393 in deposits, 
and was able to get those deposits at a net cost of 
2 igs. 6d. per cent. It and the other towns which 
followed its example, finance their municipal under- 
takings upon a much lower rate of interest than do 
towns and cities which possess no municipal banking 

The security in the municipal bank is absolute. 
The secrecy of the individual transaction is as in- 
violate as in any other bank ; the depositor gets an 
increased rate of interest and the public rates are 
reduced by 3d. in the . 

That is a Socialist experiment in operation. At 
Irvine the Provost has declared that the municipal 
bank is the most successful of the town's enterprises 
and has been of great financial benefit to the 

Of course there are objections. It is always much 
easier to suggest and imagine difficulties than to 
conceive and carry through any change which relieves 
the community of a portion of the financial incubus 
which strangles and paralyses municipal effort to-day. 


But thirteen years of practical experience have shown 
that all the dismal prophecies about a run on the 
municipal banks have been without foundation. We 
have gone through a terrible period of privation and 
unemployment, yet deposits have steadily increased ; 
indeed, a run on the banks is scarcely thinkable, since 
the only result would be to compel the Councils to 
borrow on their public securities in order to pay off 
the bank depositors ; and, as the Councils would 
require to pay outside money charges for temporary 
borrowing, the local rates would be increased and an 
extra burden thereby laid upon the bank depositors. 
There can be no panic, for the depositors know that 
their money is invested in their own waterworks, gas 
works, roads, &c. all publicly guaranteed enter- 
prises and is therefore much safer than when invested 
in the speculative ventures in which private banks so 
often invest their depositors' money. 

The other chief objection advanced to a municipal 
bank on the Kirkintilloch model is that a reactionary 
majority might find its way into the Local Council 
and scrap the municipal bank at the behest of the 
private banking interests. If that were tried, the 
reactionary councillors would be obliged to borrow 
money at dearer rates of interest in order to pay off 
the depositors in the municipal bank ; that would 
ipso facto raise the rates, and the raising of the rates 
would in turn sweep the reactionary councillors from 
office. No, the fact of the matter is, that once a 
municipal bank is established it is there for good, a 
standing illustration of the developing civic spirit, an 
essential support to all the other municipal enterprises 
and a partial relief to the community from the 
terrible exactions of private banking. 

The success of the Scottish Municipal Banks has 


been phenomenal. In 1932-3 the deposits stood as 
follows : 

Kirkintilloch. (This from a population of , 

12,000 people which has also a , Deposits. 

thriving Trustee Savings Bank e ** an * 

where the deposits have increased 

1 2,000 during the same period) . 1920 68,354 

Irvine ..... 1920 23,608 

Glydebank . . . . .1921 37^57 

Motherwell ..... 1924 3 I 5> I oi 

Peebles ..... 1925 44>56o 

Selkirk ..... 1925 29,236 

Gumnock ..... 1928 5*789 

Kilsyth 1932 8,138 


A Committee of Inquiry on the subject of municipal 
banking was set up by Mr. Churchill under Treasury 
Minute in September 1926. From its composition 
the report was almost as predictable as would be 
one from a committee of butchers set to inquire into 
vegetarianism. The appointed inquirers were five 
in number, two of them professional bankers, one, 
Lord Bradbury, being chairman, while the other 
three were associated one way or another with the 
City ; and when Sir Percival Bower, the then Chair- 
man of the Birmingham Bank, left the Committee 
room after giving his evidence, he indignantly 
denounced the Committee, and scorned in advance 
any report it might issue. 

And indeed it was with difficulty that the Com- 
mittee kept its destructive hands off the Birmingham 
Bank. The members solemnly declared they were 
* not in agreement with the general policy which 


brought it into being * ; they were sorry the Bank 
had been allowed to lend so much of its money to the 
Corporation at call ; but c so long as the Birmingham 
Bank remains an isolated undertaking * they would be 
reluctant to recommend that it should be disbanded. 1 
They recommended firmly that not another municipal 
bank should be permitted for ten years. 2 And as for 
the Scots Municipal Banks on the Kirkintilloch model, 
no more of them, under any circumstances, should be 
tolerated ; Lord Bradbury and his friends did not 
wait for their final report to the Treasury, but they 

* thought it desirable to inform the Treasury at once that, in 
our opinion, the first opportunity should be taken to prohibit 
the use in the title of any Banking Company of the term 
" Municipal " or any other term which might suggest connec- 
tion with a local authority.' 

And, sure enough, when the next Companies Act 
was put through in 1929 there was a clause (17) just 
as the Bradbury Committee had signalled it to White- 
hall and the City. The peril of cheap money for 
municipal departments must be avoided. Cheap 
money might induce municipalities to go spendthrift 
and reckless. So the public was warned off the 
banking course and the time dishonoured methods of 
exploiting the municipal ratepayers were to continue. 
Cheers from Mr. Charles Hatry and his like. 

And now any municipality desirous, since 1929, 
of forming a municipal bank has been compelled to 
drop the word * municipal ' from its title. Thus Kilsyth's 
bank is simply the Kilsyth Bank Limited and not the 

1 Cmd. 3014 (1928), Pars. 133 et seq. 

2 This was the precise period recommended to them by the 
Governor of the Bank of England. 


Kilsyth Municipal Bank Ltd. as it was originally 
intended to be. 

But in Scotland we say that the proof of a pudding 
is the preeing of it, and the final and conclusive recom- 
mendation for a wider adoption of municipal banking 
is, that there is not a single Town Councillor of any 
political party in any city or town where a municipal 
bank has been established who would propose to 
disband that bank. Not one. Whatever else there 
may be local disagreements about, there is none over 
the success of the local municipal bank or over the 
desirability of maintaining and developing it. 

Every 1,000,000 or every multiple of 1,000,000 
raised from the citizens for the citizens' business is 
another block of capital taken out of the orbit of 
the private speculator in finance. It is rather difficult 
perhaps to estimate what proportion of municipal 
bank money is what is called new money, i.e. money 
saved for investment and which otherwise would not 
have been invested at all but kept out of circulation 
or, alternatively, would have been spent upon 
consumable goods. In Birmingham Mr. Chamberlain 
estimated that the proportion of new money for 
investment was from 75 per cent, to 80 per cent, 
of the total amount of money deposited in the muni- 
cipal bank, but the Bradbury Committee refused to 
put the figure higher than 25 per cent. Even so, 
that extra saving of 25 per cent, indicates clearly that 
by municipal banking we can get into effective muni- 
cipal use about 100,000,000 presently retained in 
jugs or in pockets. 



* ... he who dwelleth well in fellowship and because of 
fellowship shall not fail, though he seem to fail to-day, but in 
days hereafter shall he and his work yet be alive. . . . Be of good 
cheer, for the fellowship of Man shall endure, however many 
tribulations it may have to win through.' WILLIAM MORRIS, 
A Dream of John Ball. 

THE Co-operative Wholesale Society Bank acts 
as Banker, not only for the Co-operative Whole- 
sale Societies, but for practically all the retail Co- 
operative Societies, for the Labour Party, for most 
of the Trade Unions and their Approved Health 
Societies* for some of the larger Friendly Orders such 
as the Shepherds and the Rechabites, and as at 
January 1933, for 43,325 individuals. The entire 
assets of the Co-operative Wholesale Society guarantee 
the Bank. No accounts are opened for individuals 
who, or for organizations which, are in any way in 
competition with the Co-operative movement. 

Customers operating current accounts with the 
C.W.S. Bank still require to make use of the branches 
of the Joint Stock Banks for paying in money or with- 
drawing it from the C.W.S. Bank. And the C.W.S. Bank 
is not a clearing bank, i.e. it has no separate account 
with the Bank of England. The rate of interest paid 
upon current accounts is determined at the end of 
each half-year when the available surplus is ascer- 
tained. The annual rate paid upon fixed deposits 


depends upon the length of time the deposit is allowed 
to lie, running from 2 per cent, for money deposited 
for less than six months, to 3| per cent, for money 
which is allowed to lie undisturbed for four years. 
Three months' notice is required for withdrawaV under 
this scheme. 

The Co-operative Wholesale Society Bank makes 
no profits and pays no dividends. All surpluses, 
except small sums placed to reserve, are divided equally 
among borrowing and lending customers in the 
form of a lower overdraft interest to the borrower, or 
a higher rate of interest to the lender. c It is interest- 
ing to note, 5 says Mr. Sidney Webb, c that if the Joint 
Stock Banks adopted these methods the whole of the 
dividend now paid to the shareholders would be 
received by the customers.' 1 

The Co-operative Wholesale Society Bank began 
in 1872 as a Loan and Deposit Department of the 
Wholesale Society, but it was not until the year 1876 
when restrictions upon Co-operative Banking were 
withdrawn by Parliament that the Bank really com- 
menced to operate as a bank. It exists primarily to 
promote Co-operative business, but its monetary 
resources now far exceed what is required for Co- 
operative trading requirements, 2 and very consider- 
able sums are invested in Government Stocks, 
Municipal Stocks, Public Board Stocks, Railway 
Mortgages, &c. Its Credit Balances on January 14, 
1933, amounted to over 65,000,000. 

The present Manager of the Bank, Mr. T. J. Davies, 
tells the story of how during the Coal Strike of 1912 the 

1 Article in Contemporary Review, July 19 18, * How to Prevent 
Banking Monopoly.' 

2 Economic Information, October I933> Co-operative Wholesale 


Northumberland Miners' Association ' being hard- 
pressed for funds, applied to its Bankers for an over- 
draft, excellent security being offered for the loan. 
This overdraft was refused, however, and the North- 
berlanvi Miners thereupon approached the Co-operative 
Wholesale Society Bank, by which an advance was 
made immediately, so enabling the Union to make 
payments to its members.' l 

Needless to say, the Northumberland Miners' 
Association learned a lesson that day, and they 
decided that they would in future deposit their funds 
where there was less likelihood of political or economic 
prejudice being used against them in an hour of crisis 
and need, than was manifestly the case in the pri- 
vate profit banking system. 

When any apologist for the profit-taking system 
in banking declares that the private banks have no 
politics and no prejudices, refer him to a Northumber- 
land miner. 

1 A Brief History of the Co-operativt Wholesale Society Bank, T. G . 
Davies, 1930. 



' We do not believe that any large proportion of bankers are 
plotting to keep the world poor. There is a number of honestly 
perplexed men among them, men who are dismayed and distressed 
by the turn things are taking.' H. G. WELLS, The Work, Wealth, 
and Happiness of Mankind, p. 49 1 . 

* No dictator could interfere with our banking system, for this 
was still a democratic country/ Hon. ALEXANDER SHAW at 
Galashiels, in Financial News (7/1 1/33). 

' Banks create credit. It is a mistake to suppose that bank 
credit is created to any important extent by the payment of money 
into the banks. . . . When a bank lends by granting an advance 
or discounting a bill, it is a clear addition to the amount of the 
means of payment in the community. The bank does not lend 
money.' Encyclopaedia Britannica, Article on ' Banking and Credit,' 
I4th edition, vol. iii. p. 48. 

WE come now to the question of the relationship 
which ought to exist between the State and the 
Joint Stock Banks, the Acceptance Houses, the Dis- 
count Bankers, and the Stock Exchange. 

During the year 1886 there were in England and 
Wales 109 separate Joint Stock Banks with a paid- 
up capital of 38,500,000, and with deposits and 
current accounts amounting to 229,000,000. Between 
1886 and 1916 the process of amalgamation had sc 
developed in the banking world that the number oi 
individual institutions had been reduced from 109 tc 
35 ; but the 35 banks remaining had increased theii 



capital by 10,000,000, and they had multiplied their 
deposits and current accounts by four. These steps 
to private trustification, however, had seriously 
alarmed the Chambers of Commerce, and in 1919 a 
Treasury order was issued forbidding further banking 
amalgamations without the prior permission of the 
State. The swallowing-up process thereupon was 
halted, and fourteen years later, April 1933, there was 
still ostensibly, as the following table shows, a com- 
petitive banking system in operation : 

No. of 

The ' Big Five ' (Barclays, Lloyds, 
Midland, the National Pro- 
vincial, and the Westminster) . 5 
Other Clearing Banks . . 4 

County Banks . . . .5 

West End of London . . .2 

Irish Banks . . . -9 

Scottish Banks . . . .8 


1 76,000,000 
1 28,000,000 


There were also several Co-operative Banks taking 
deposits (65,000,000) and there were certain deposits 
in such private banks as Barings and Hambros. 

This table, however, gives a somewhat exaggerated 
picture of the extent to which competition still 
persists. Several of the Scottish banks, for example, 
are under the control of one or other of the * Big Five.' 
The Clydesdale and the North of Scotland Bank are 
controlled by the Midland. The National Bank of 
Scotland is controlled by Lloyds, which holds no less 
than 97*89 per cent, of its stock. The British Linen 
Bank is under the control of Barclays. The other 
four Scottish banks, the Union, the Commercial, the 


Royal, and the Bank of Scotland, have close working 
arrangements. Indeed, all the Scottish banks have 
undertaken not to outbid each other in rates for 
deposits and advances. 1 One of the Clearing Banks, 
Coutts, is now affiliated to the National Provincial, 
while another, Williams Deacons, has exchanged 
stock with the Royal Bank of Scotland ; the capital 
of the Belfast Banking Company is now held by the 
Midland, and the bulk of the Ulster Bank shares are 
held by the Westminster, Taking the British position 
as a whole, it is safe to say that were it not for the 
fact that the bigger commercialists and industrialists 
had become rather restive at the prospect of a private 
banking trust, and had it not been for the minatory 
attitude of the Treasury, the chances are that by this 
time even the illusion of competition would have 
disappeared altogether, and we should have been 
faced with one gigantic money corporation dictating 
credit terms to every trade in the land. 

And in truth there is a great deal to be said, from 
a purely administrative efficiency point of view, for 
a single control in our banking system. There are 
hundreds, perhaps, indeed, thousands, of redundant 
bank buildings, frequently palatial marble-fronted 
structures, erected at great cost and paid for out of 
the overdraft levies imposed upon British traders. 
There are unnecessary ornamental Directors droves 
of them used for their names decoy ducks to 
impress the public. Thus Barclays Bank in 1932 had 
a Central Directorate of 44 members. Lloyds had 33, 
the Midland 33, the National Provincial 24, and the 
Westminster 26. Barclays, in addition, had 96 local 
directors and the National Provincial 31. And Sir 

1 ' Treatise on British Banking,* Sir Charles Addis, Edinburgh 
Review, July 1918. 


Charles Addis, himself a distinguished banking 
magnate, has given us an unforgettable picture of a 
meeting of a British bank board. After telling us that 
the few banks now remaining are virtually Govern- 
ment guaranteed institutions, inasmuch as that the 
insolvency of one of the great banks would involve 
such widespread disaster that no Government could 
afford to stand aside, he goes on to describe a meeting 
of a board of management of a British bank, and 

* the difficulty of withdrawing its members even temporarily 
from their country pursuits and their obvious anxiety to lose no 
time in returning to them ; most of them old men, many of 
them long retired from business ; some of them ex-Government 
officials and the like who have never been in business ; a few 
ornamental titled persons ; only one or two here and there who 
have no train to catch, and are willing to discuss the matter 
in hand with attention and, it may be, with understanding.' 

Yet, despite the waste and folly of the present 
system, Sir Charles was m distress lest further amal- 
gamations should irritate the public and play into 
the hands of those who would nationalize the banking 

The profits earned by the five large Joint Stock 
Banks are amazing. In 1932 between them they 
had profits to distribute amounting to nearly 
11,500,000, and their rates of dividend ran from 
12 per cent, to 16 per cent. The Scots banks and the 
English Provincial banks do equally well. 

In addition to these dividends, large sums went away 
in salaries for what was often a mere joke of ' direction* 
in unnecessary competitive buildings, and in a 
ludicrous waste of competitive advertising, perhaps 
in part designed to keep the Press friendly. Upon this 
last point witness the annual recitations of the obvious, 
and the laudations of their system, and the prog- 


nostigations (mostly erroneous) regarding future move- 
ments in trade all covering several columns of the 
great newspapers and weekly journals at advertisement 
rates and uttered with great solemnity by the Bank 
Chairman, and treated, of course, with appropriate 
public reverence by the business managers of the Press. 

Even under private enterprise banking a further 
unification of the system would have manifest ad- 
vantages. It would, inter alia, diminish the risk 
of bank failure ; it would reduce waste and the 
avoidance of waste is now the one economy as such 
which is justifiable in our modern world. It would 
mean that a shifting of business from one area to 
another or, indeed, the total disappearance of an 
industry altogether, would not involve a bank 
collapse ; and arrangements could quite properly and 
rightly be made whereby no existing salaried officer or 
clerk would be discharged because of redundancy : 
any superfluous staff could be dealt with, simply by 
refraining from filling up vacancies in unnecessary 
posts, as these vacancies arose on the death of the 
existing occupants. Instead of crabbing the tendency 
to amalgamation and the elimination of unnecessary 
costs, the State might well facilitate every possible 
step towards them. 

But whether the State should go farther than that 
in the business of credit creation and short-term 
lending of that credit to private industry is a point 
around which there has been considerable contro- 
versy among Socialists, although the majority opinion 
at recent annual congresses of the Labour Party has 
clearly been in favour of the nationalization of the 
Joint Stock Banks and the nationalization or control 
of the other Finance institutions and banking houses. 
The case for nationalization is that 


(a) Credit control is as vital to the nation as control 

of the army or the navy, and that there is no more 
reason why private companies should exploit 
the national credit for profit than that they should 
have the army and the navy farmed out to them 
for profit ; and 

(b) that the enormous surpluses in the business every 

year should accrue to the State. 

Moreover, there is a growing appreciation of the 
fact that the banks do not make their profits out of 
the existence of deposits for which they may have 
given 3 per cent, interest and the lending of these 
deposits out again on overdraft at 6 per cent, interest. 
What comparatively small profits they may make in 
that way are completely eaten up in the administrative 
costs of the business. But banking profits in the main 
are derived from the credits created out of nothing 
and upon which 5 per cent, or 6 per cent, is charged 
to borrowers. As to this credit creation there is a 
crowd of authoritative witnesses from the Encyclopaedia 
Britannica to the Macmillan Committee. One quota- 
tion from the Macmillan Committee's report l will 
here suffice : 

* It is not unnatural to think of the deposits of a bank as 
being created by the public through the deposit of cash repre- 
senting either savings or amounts which are not, for the time 
being, required to meet expenditure. But the bulk of the 
deposits arise out of the action of the banks themselves, for by 
granting loans, allowing money to be drawn on an overdraft 
or purchasing securities, a bank creates a credit in its books 
which is the equivalent of a deposit. . . . The bank can carry 
on the process of lending or purchasing investments until such time as 
the credits created, or investments purchased, represent nine times the 
amount of the original deposit. 9 

Committee on Finance and Industry, Gmd. 3897, Par. 74. 


And it can be and is strongly argued that this pre- 
rogative in the creation and issue of money credit 
ought not to be a privilege of a few fortunate private 
companies, but should be held and operated by the 
State for the national advantage. * 

Yet all these arguments probably weighed much 
less with the Labour Party delegates than did the 
firmly-rooted conviction which many of them held 
that the Labour Government of 1929-31 had been 
deliberately sabotaged by a City conspiracy. They 
recollected that Mr. Ramsay Macdonald in his salad 
days had warned them of a financiers' counter- 
revolution. And other delegates who saw no evidence 
of a calculated conspiracy but only evidence of the 
inherent rottenness of a system, declared that the 
periodic financial crises and crashes in the private profit 
method of managing the nation's credit with re- 
sultant misery to millions of innocent folk ought no 
longer to be tolerated. These delegates held that the 
only way to prevent a recurrence of the events of 1931 
was to insist upon a unification in ownership of the 
Joint Stock Banks, and upon that unified system being 
brought under public ownership and control. 

But there are, I think, serious objections from a 
Socialist point of view to this policy. 

Let us suppose that we have nationalized the Bank 
of England, converted the Post Office Savings Bank 
into a real National Bank, and created a National 
Investment Board. We have then manifestly taken 
away from the private profit bankers a very consider- 
able and a growing part of our national money 
business. We could then have all our requirements 
for Electricity Boards and Transport Boards, Housing 
and new State enterprises of one kind or another met 
without any financial rake-off to the private banks ; 


and what would be left to the Joint Stock Banks 
would be the business of short-term loans to private 
enterprise and that alone ! 

Now could or should the State intervene in this 
financing of private enterprise ? If it did, consider 
the troubles that would inevitably arise over every 
application for an overdraft which was refused by 
the Banking Board. Would not the Government of 
the day be accused of discrimination and favour to 
A who had got an overdraft as against B who had 
not although there might be quite valid reasons for 
the refusal to B 1 . Moreover, the Joint Stock Bank 
exists primarily to facilitate short-term lending to 
private commerce and is, indeed, an integral part of 
the private enterprise system of trading it is the 
accountancy part of it whereas State banking, after 
providing long-term investments for State enterprises, 
is much more likely to develop along the line of 
providing citizens with a safe deposit for their savings 
and their valuables, keeping customers' accounts, and 
providing exchange facilities, for all of which services 
it might legitimately charge a fee. At any rate, it is 
difficult indeed to visualize a State Banking system 
lending credits to, and taking risks for, competitive 
private profit enterprises. 

Again, if we are to buy out the existing shareholders 
in the Joint Stock Banks at present prices of their 
shares, we should incidentally take over at book value 
a considerable amount of frozen credits such credits, 
say, as were lent during the cotton-boom period. We 
should engage in an exceedingly bad bargain and 
instead of potential savings to the State we might well 

1 See The Nationalization of Banking, by Mrs. Amber Blanco 
White (Allen & Unwin), for a very competently written argu- 
ment upon this point. 


have considerable losses. On the other hand, any- 
thing in the nature of confiscation is so outside practical 
politics and has so many suicidal disadvantages that 
we need not take up time discussing it. 

Then there are the political difficulties of 
nationalizing the Joint Stock Banks. For the acquisi- 
tion of a money-lending system that the State does 
not want and for its own purposes does not require, 
we should have hundreds of thousands of petty trades- 
men and depositors mobilized against us, excited and 
enraged by canards about the wicked Socialists intent 
upon the stealing of their money ; and the net result 
might be that we should fail to get the political backing 
necessary for a socialization of bona fide and useful 
services. Again, even if a political majority were 
secured with this additional handicap against us, we 
should be faced at once with the difficulty of dealing 
with the branches of Foreign and Dominion banks 
doing business here. If we nationalized the British- 
owned banks but left these Foreign and Dominion- 
owned branches alone, the latter could be used as 
channels for the surreptitious export of British finance 
capital, or, at any rate, they could continue to under- 
take the very sort of business that the British-owned 
Joint Stock Banks had been doing ; nevertheless, if we 
compulsorily acquired them we would certainly have 
serious international complications. 

These, then, are the major objections to nationaliza- 
tion of the Joint Stock Banking system. But are we to 
continue without limit the system of fabrication of 
money credit for private profit by these banking 
organizations ? Are we to continue the existence of 
companies who can, by withholding loans or by 
discriminating unfairly in the issuance of loans, bring 
about a trade standstill ? 


As to the first point the creation of credits. The 
volume of credits issued during any given period is 
dictated by the Bank of England. The Bank of 
England can, as and when it chooses, increase or 
decrease the deposits in the Joint Stock Banks by 
means of what is called c open market operations.' 
It can, when its directors think proper, purchase 
millions of Securities, thereby automatically increasing 
the amount of cash in the market, or it can sell 
Securities and take cash off the market. One way or 
another these operations affect the amount of deposits 
lodged with the Joint Stock Banks, and as the Banks 
can only with safety manufacture credits up to the 
extent of nine times the actual cash they hold (or have 
deposited at call with the Bank of England) it follows 
that the volume of the credits the Joint Stock Banks 
may issue depends upon the policy pursued by the 
Bank of England. But not only is the volume of credit 
which the Joint Stock Banks issue determined by the 
Bank of England : it must be remembered that 
the Bank of England also fixes the bank rate, 
and that rate in turn fixes the overdraft rate of 
interest to borrowers. The Macmillan Committee 
(Par. 96), pointed out that the Bank of England ' is 
in complete control of the cash base of the country. 5 

Further, if we succeed in securing State ownership 
of the Bank of England (creating the credits for 
ways and means advances to the State and keeping 
the profits thereon) and if we have a real Post Office 
Bank operating a cheque system, we shall rapidly 
diminish the area and extent of the exploitation of the 
public which arises from the present system of credit 
manipulation. Every industry converted into a State 
Department or a public utility corporation would be 
financed through the State Bank, and the area of 


private finance would be continuously and progressively 

There remains the important question of sabotage. 
Here we are learning much from President Roosevelt's 
experiments in the United States. Deliberate sabotage 
by the Bank Mandarins would be treason to the 
Nation and could be promptly deal with, as any other 
act of deliberate treason is, or can be, dealt with ; but 
in truth a deliberate sabotage for political purposes is, 
to say the least of it, extremely unlikely. In the first 
place, the bank shareholder is in the business not for 
his health or for his politics but for his pocket, and if 
his bank refuses, despite a proffered and adequate 
security, to finance a sound industry or a sound 
company or individual in an industry, then the 
bank shareholder will lose his dividends. In the 
second place, any such sabotage would rally the 
industrial magnates, whom the banks were discrimin- 
ating against, to ardent and vehement antagonism to 
the banks. Very reasonably these industrial gentlemen 
would object to being sacrificed to make political 
propaganda, and if the banks lose the favour and 
goodwill of the industrialists they are finished. One 
deliberate refusal to finance a business if associated 
with any suspicion of political or economic prejudice, 
as was alleged in a case of refusal of credits to the 
Northumberland Miners' Union, 1 drives away huge 
volumes of banking business for ever. Any similar 
sabotage of an industry would destroy the bank that 
engaged in it. 

On the whole, then, and so long as private industry run 
for profit continues, and to the extent to which it continues, its 
banking system may well continue also as a private 

1 See ante, Section on Co-operative Banking. 


Finally, the considerations which would discourage 
us from nationalizing the Joint Stock Banks become 
even more apparent when we look at the Acceptance 
Houses and the Discount Houses. The former number 
about twenty, and are really guarantors for particular 
transactions in international trading, while the latter 
three larger discount companies and seventeen 
private firms borrow from the Bank of England and 
the Joint Stock Banks, and, for a commission, discount 
(that is, find immediate money for) the Bills of 
Exchange for which the Acceptance Houses have 
already guaranteed ultimate payment. 

Both Acceptance Houses and Discount Houses 
perform functions necessary to private trading trans- 
actions, and so long as international trading is a 
matter left to individual citizens and is operated by 
them for a profit, the Acceptance and Discount 
Houses had better remain the private risk-taking 
enterprises that they are now. To some small extent 
the Exports Credits Department has acted as guarantor 
and insurer to British exporters and so has invaded 
the City, but it only guarantees as a rule up to 75 per 
cent, of the value of the order, and does not, in any 
case, endorse the bills. The bills are, therefore, not 
negotiable in the money market. Still it is quite 
possible, and indeed desirable, that there will be 
considerable developments in the State guarantee of 
export-trading risks. But, in general, it may be said 
that so long as international trade is conducted as 
between individual sellers and purchasers so long will 
the City exist to finance that trade. 

It is, however, most important to observe, that 
whosoever controls the Bank of England controls the 
Discount Market even as he controls the Joint Stock 
Banks, and if the State were to own and control the 


Bank of England, and if (as the Danish Central Bank 
does now) it controlled all dealings in foreign currency, 
we should be inflicting hardship on none, but would 
only be taking the first great step necessary to trans- 
form Finance Credit from being what it is to-day, a 
great machine of exploitation, into a useful national 


' Sir Walter Raleigh proposed that he should seize the Mexican 
plate fleet. Bacon objected that such a proceeding would be 
piracy, to which Raleigh retorted : " Did you ever hear of 
men being pirates for millions ? " ' GARDINER'S History of 

IN the summer of 1931 a Labour Government 
suddenly sagged at its knees and fell dead. High 
Finance had killed it as High Finance will kill the next 
Labour Government, and the next again, unless be- 
times the creation and withdrawal of money credit 
comes to be generally regarded as a State Service, 
even as the Navy is regarded as a State Service, and 
one which the Nation would no more dream of 
farming out as a job line to a company promoter, than 
it would dream of farming out the Navy. 

When the Government crashed in 1931 there was 
some loose talk about a Bankers* Plot. But really 
there was no Bankers 5 Plot ; that is, there was no 
deliberately conceived, no consciously designed mani- 
pulation of the Money Market with the object of 
achieving a political end in the destruction of a Labour 
Government. Nevertheless it is true that the day-to- 
day policy of the Government had to be trimmed, 
curtailed, and amended, because of decisions taken 
in the City by groups of the Government's bitter 
political enemies. And finally when the City's beggar- 
my-neighbour system and the practice of leaving 


our tickets for the exchange of goods and services in the 
control of some thirty non-elected gentlemen (who run 
a company which is not required by law to file 
accounts) developed to catastrophe with all the in- 
evitability of a Greek tragedy, impudent clamours 
were raised by the Money Traders' press, and the 
public was mesmerized into the belief that it was the 
Government and not the Money Traders who were 
responsible for the crisis. There was no Bankers' 
Plot. What happened was that the system of inter- 
national lending of other people's money by private 
groups had collapsed ; but the wrong prisoner went 
into the Dock. 

The dismemberment of Austria at the end of the 
Great War made her economic recovery impossible. 
Her few remaining industries were heavily indebted to 
the Banks, and when the Banks, playing, as they 
thought, for safety, proceeded to call in their loans, 
thereby compelling borrowers to make a hurried sale 
of goods at sacrifice prices in order to raise money to 
repay their debts, Austria made a long sure hop 
to the precipice. As one method of restricting Bank 
credits the overdraft rate in Austria was raised to 
12 per cent. Then the small man broke. In turn 
the larger firms could no longer meet their obliga- 
tions. The first big bank to go was the Boden in 

1929, and the Credit Anstalt had to assume its liabilities 
in order to ward off a general smash. By December 31, 

1930, the Credit Anstalt itself was in difficulties ; 
indeed, the losses amounted to its entire share capital 
and reserves ; and the Government of Austria, in 
association with the Austrian National Bank and 
Messrs. Rothschild, hurried forward with a loan 
of 89,000,000 Schillings in a vain last-hour endeavour 
to save the system. But when, on May 8, 1931, 


the Credit Anstalt Balance Sheet was issued, a shiver 
ran through Europe, and the run upon Austrian credit 
was intensified. Between May 1931 and the beginning 
of 1932, there was a total flight of finance capital 
from Austria, estimated by the Economic Intelligence 
Service of the League of Nations at no less than 
700 to 900 million Schillings. 

The affairs of the Credit Anstalt do not further 
concern us here, beyond noting that its capital of 
.177,000,000 Schillings had to be written down 
to 1,000,000 Schillings, and its foreign assets taken 
over by a Company which was registered (of all places 
in the world) in Monaco ! Most of the other Viennese 
banks were perforce similarly reconstructed. The 
crash was complete. 

Into the firing-line the poor British tax-payer had 
been shoved. On June 17, 1931, the Bank of England 
advanced 4,400,000 to the Austrian Banks. (This 
sum, it should be noted, was subsequently reimbursed 
to the Bank of England by the British Treasury), 
and three days later, on June 24, 1931, President 
Hoover proposed a standstill upon international debts 
for one year, a proposal which was agreed to by Great 
Britain, at a cost to our National Budget, as Mr. 
Snowden the Chancellor estimated, of no less than 
11,000,000. So far then and this carries us down to 
June 1331 only by blind partisan folly could the 
British Labour Government be blamed in any way 
for the crisis ! 

But now let us see what effect the Austrian smash 
had upon Germany, and through Germany, upon 
Britain. On the day following the Hoover proposal 
for a postponement of payment of international debt, 
that is, on June 25, 1931, the Bank of England was to 
be found co-operating with the Bank of France, the 


Federal Reserve Bank of America, and the Bank of 
International Settlements, in placing 20,000,000 
Sterling at the credit of the German Reichsbank. 
The panic has passed from Austria into Germany, and 
the money traders of London were by this time, rather 
seriously alarmed, for they held about 23 per cent, of 
Germany's foreign-owned short-time debt, part of 
which they had eagerly scrambled for when Germany 
was compelled to offer 7! per cent, to 8 per cent, in 
interest for accommodation. But by midsummer of 
1931 all foreign investment in Germany appeared 
dangerously like waste paper ; the North German 
Wool Company had closed its doors on July 3, with 
losses of 15,000,000 ; following hard upon that blow, 
the Darmstaedter and National Bank blew up with 
foreign obligations of 23,000,000 ; worse still, on 
July 14 all the German Banks were closed by Govern- 
mental decree ; and when they were re-opened at 
the beginning of August, the discount rate was raised 
to 15 per cent., and the German Government was 
compelled to make the Banks a contribution of 
445,500,000 Reich marks, in return for which it 
became owner of all the Banks in Berlin with one 
exception, and that the smallest of the lot. 

Now our British banking system, as the Macmillan 
Committee had previously warned us, was exceptionally 
open to attack from a continental panic. In 1931 
London held over 400,000,000 of foreign short-term 
funds on loan, and the foreign lenders of that money, 
when they realized that London had reinvested heavily 
in bankrupt Austria and Germany, naturally sent 
out an urgent call to London for the immediate return 
of their money. 

And thus began the drain upon the Bank of England. 

Day by day, week by week, gold had to be exported 


from Threadneccllc Street ; between July 15 and July 
29 the gold reserve of the Bank of England fell from 
164,0003000 to 1 32,000,000 ; trade languished ; 
commerical houses failed : unemployment increased : 
the soi^rces of public revenue diminished : in a world of 
plenty, poverty multiplied and intensified. 

On July 31, Sir George May's Committee urged that 
to balance the Budget in Britain there ought to be, 
inter alia> a cut of 66,500,000 upon the insurances and 
reliefs supplied to the unemployed victims of the 
collapse in High Finance. The Poor, it appeared, 
had been eating far more than was consistent with 
compound interest, and as it was considered to be of 
the first importance that there should be no cut in 
the rate of annual tribute upon war loan not even as 
in Australia, a voluntary reduction in the rate of 
interest ! the Government was strongly pressed to 
balance its Budget by a reduction of the sustenance 
given to the unemployed. 

A majority in the Government strove in despera- 
tion against such a solution of the country's diffi- 
culties ; that majority was prepared to institute a 
revenue tariff upon the imports of manufactured 
goods (and that was a revolutionary and hazardous 
change indeed for most of them), they declared them- 
selves open to consider further reductions in arma- 
ments, and to make whatever other restrictions in 
expenditure might be adjudged necessary to balance 
the Budget ; but cut at the poor unemployed victims 

Down to this point in the summer of 1931 there was 
little serious effort on the part of the Money Traders, 
or their newspaper press, to blame the Government 
for the crisis. Indeed for several weeks they were 
accusing the wicked Bank of France of organizing 


the run upon London's gold reserves ; but this was 
demonstrably untrue, and in the early part of August, 
M. Flandin, the French Chancellor, and M. Laval, the 
French Premier, both assured me that the charge was 
baseless, and in the presence of an official witness from 
the British Embassy in Paris, declared that they had 
offered to lend money to London in order to save the 
sterling, and that upon at least two occasions when 
the Bank of France had bought gold, it had done 
so at the direct request of the Bank of England, which 
had made the request for purely regulatory and 
administrative reasons ! 

It was not easy at the time even for members of the 
Government to get at the facts. We never saw 
the Governor of the Bank of England. He was, we 
were informed, away somewhere in the wilds of 
Quebec taking a cure for his health, and was far 
beyond reach of a telephone. Nor did he return until 
after the Government was broken, and evicted from 
office. But during the crisis, the Deputy Governor 
was a regular visitor to the Chancellor at Downing 
Street, and day by day his lugubrious predictions of 
disaster, as reported to the Government, seemed to 
gather intensity. ... A bad day yesterday ... so 
many millions withdrawn from the Bank . . . only a 
hundred hours to go, and there will then be no money 
for Old Age Pensions. . . . Next Wednesday will 
see the finish ! ! And so on. 

On August i, the Bank of England received authority 
to acquire a foreign loan of 45,000,000 to meet the 
drain upon its gold (as like as not some of the new 
lenders were the withdrawers of a week before, but 
now were relending at a higher rate of interest) ; and 
the Chancellor had authorized an increase of 
15,000,000 unbacked by gold, in the currency issue. 


But still the drain continued. By August 22, the 
foreign loan of 45,000,000 had almost entirely dis- 
appeared, and the Bank had intimated to the 
Government that another 80,000,000 was absolutely 
necessary to peg the exchange. But this time, so we 
were most emphatically assured, the Government 
itself must borrow ; the credit of the taxpayer must 
be placed behind any loan secured from Paris and New 
York ; the credit of Threadneedle Street was no longer 
adequate security for the backing of a loan. 

And again and again we were warned that neither 
Mr. Harrison of the Federal Reserve Bank in New 
York, nor M. Moret, the Governor of the Bank of 
France, would provide the credits necessary to save 
the Bank of England unless a promise were given that 
the British Budget would be balanced in such a 
manner as they, the lenders and their London advisers, 
approved. Later we had some occasion to doubt 
whether either Mr. Harrison or M. Moret imposed the 
precise conditions with which their friends and go- 
betweens credited (or discredited) them. But at 
that time, it was, or appeared to be, an ultimatum, 
and a foreign one at that. A British Budget was to 
be dictated by Foreign Financiers. 

Rather than yield, the majority of the Cabinet 

During the summer of 1931, while this great and 
moving drama was being played out, the Money 
Traders were scared stiff with fright. The abler men 
among them well knew that the financial earthquake 
that had shaken Austria and Australia, Germany 
and South America, was not caused by the British 
Government, but was due to some breakdown in a 
money system, with which the democracies of Europe 


and their elected representatives had been repeatedly 
warned not to interfere. Yet such was the hysteria of 
the times that the poor Unemployed, and not the 
system of private enterprise gambling with other 
people's money, got blamed in the press for the crisis 
in our national affairs ; and a wretched campaign of 
public befuddlement reached its apotheosis in a speech 
by Mr. Runciman, the new President of the Board of 
Trade, who in an hour of exaltation at Newcastle-on- 
Tyne declared that the Unemployed had eaten up 
' a substantial part of the assets of the Post Office 
Savings Bank. 5 l 

Instead of saving the gold standard and balancing 
the Budget, by means of a voluntary conversion of the 
public debt to a lower rate of interest (as they had to 
do later when the gold standard had gone in any case), 
and by cancelling the derating subventions given 
to wealthy and prosperous firms, and by a revenue 
Tariff and by similar measures, the new Coalition 
Government borrowed abroad the 80,000,000 at 
4| per cent., plus heavy commissions, and it forced 
considerable and drastic economies upon the poor. 
Standards of living everywhere were reduced. 

And thus was the money crisis of 1931 met and 
' solved.' 

No section of us perhaps can afford to be over dog- 
matic with our remedies and solutions for the next 
money crisis when it blows up. At best we may but 
resolve to profit by experience, and to adjust our 
finance to collective control step by step as we col- 
lectivize control of our industry. But already it is 
clear that the creation of our new money tokens can 
no longer with safety be left as a private company pre- 
1 Times, 26/10/31. 


serve : that in citizen finance we can no longer afford 
Hatryism : and that a widespread development in Muni- 
cipal banking is a very urgent necessity. Also it is clear 
that no democratic Government can function freely 
if its projects are to be at the mercy of its political 
enemies in the City. And as an essential preliminary 
to any change towards Democracy in Finance, we must 
first shatter the delusion that the oracles of the present 
financial dispensation are to be obeyed with awe and 
reverence. What advice they have tendered successive 
governments in the recent past has been proved to be 
wildly and ludicrously wrong. They were wrong 
about reparations from Germany and its effects. 
They were wrong when they advised Mr. Churchill 
about the Gold Standard, and wrong when they pled 
in 1931 that the re-suspension of that standard would 
knock the bottom out of civilization. 


Acceptance Houses, 180-91 
Addis, Sir G., 119, 183 
Allied Ironfounders Ltd., 77 
Argentine, 5, 9, 139, 140 
Austin Friars Trust, 77 
Australia (gold mining), 84 ; 
(Commonwealth Bank), 139 
Austria, 119, 139, 194 
Automatic machines, 77 

Baldwin, Rt. Hon. S., 60 
Balfour Committee, 1 1 2 
Bank amalgamations, 181 
Bank balance sheets, 69, 73, 

103, 106 

Bank Charter Act, 34 
Bank Directors, 182 
Bank failures, 2, 3, 4, 19, 29, 

31, 32, 34, 69 

Bank of England (discovery of 
notes), 2 ; (letter from Lord 
J. Russell), 20 ; (during 
panic of 1857}, 33 ; (during 
panic of 1866), 34 ; (during 
panic of 1931), 198 ; (ad- 
vertisements), 51 ; (foreign 
loans), 123, 132 ; (national- 
ization of), 135 seq. ; 
(creation of credits}, 189; 
(dividends), 136 ; (policy), 


* Bankers' Plot,' 193 
Barings, 10 
Basle Committee, 120 
Beaverbrook, Lord, 1 1 8 
Belgium, 116 
Bevan, G. Lee, 79 
Birmingham Bank, 163, 174, 

Bolivia, 117 

Bonar Law, 59 

Bottomley, H., 83 

Bradbury Committee, 174 

Brailsford, 10 

Brazil, 9, 1 18 

Bristol, 1 68 

British Controlled Oilfields, 96 

British Glass Industries, 77 

British Museum, 4 

Budapest, 163 

Bulgaria, 139 

Burn, Sir J., 135 

Business Government, 88 

Capital Issues Committee, 122 
Carlyle, 16 
Central Banks, 139 
Chamberlain, Neville, 163 
Chinese Loan, 41, 114 
City Equitable, 79 
Clark, Colin, 132 
Cobbett, 25 
Columbia, 8, 118 
Commercial Bank of London, 

Commercial crash (1825-6), 2 ; 





(i866J, 33; 
(1890-7), no ; 

Commercial fraud, 43, 79, 106, 


Company promoting, 37, 43 
Conversion Scheme, 60 
Co-operative Banks, 164, 177 
Corporation and General 

Securities, 77 
Costa Rica, 34 
Cotton finance, i, 41, 43, 95, 



Council of Foreign Bond- 
holders, 6 
Covent Garden, 95 
Credit Anstalt Bank, 132, 194 
Credit, creation of, 180, 185, 

188, 193 

Cunliffe Committee, 48 
Currency Bank Notes Act, 143 
Czecho-Slovakia, 115, 139 

Daily Telegraph, 54 
Dardanelles, 1 1 5 
Darmstaedter Bank, 196 
Davenport, E. H., 128 
Dawes Loan, 62 
Death Duties, 57 
Defaults. See Foreign Loans 
Deflation, 58, 64 
Denmark, 131, 139, 192 
Discount Bankers, 180, 191 
Dom Pedro, 6 
Douglas, C. H., 144 
Drapery Trust, 77 
Dunlop Rubber speculations, 

Economist, the, 120 
Ecuador, 9 
Electricity, 97, 103 
Encyclopaedia Britannica, 180 
Export Credits, 191 

Farrow's Bank, 68 
Fauntleroy case, 3 
Financial News, 53 
Finland, 139 
Fisher Irving, 155 
Flandin, M., 198 
Foreign armaments, 114 
Foreign loans, 2, 5, 8, 14, 34, 

113, 117, 122, 131, 196 
France, 109, 195, 198 
Frozen credits, 120 

Germany, 116, 118, 140, 164, 


Gesell theory, 154 
Gladstone, W. E., 137, 157 
Glasgow, City of, Bank, 32 

Glasgow Herald, 53 

Globe Assurance, 27 

Gloucester, 75 

Gold drain, 196 

Greece, 9, 139 

Guatemala, 9 

Guernsey experiment, 149 seq. 

' Guinea-pig ' directors, 37 

Hamburg loan, 1 1 6 

Hampstead, 32 

Hansard Publishing Union, 83 

Hatry, C., 74 

Hawtrey, R. G., 135 

High finance, 62, 98, 101, 107, 

193, 197 

Honduras, 8, 34 
Hooley, E. T., 36, 85 
Hoover Standstill Agreement, 


Hudson, George, 15 
Huskisson, 2 
Hydro-Electric, 99 

Income-Tax exemptions, 52 

Inflation, 143, 152 

Interest on War Loan, 44 
et seq., 153, 197, 200 

International Holdings Com- 
pany, 99 

Irvine, 172 

Italian Government Bonds, 102 

Italy, 164 

Japan, 114, 139 

Johnson, General, 83 

Joint Stock Banks, 157, 165, 

1 80, 183 seq. 
Jute Industries, 76 

Keynes, J. M., 59, 124 
Kirkintilloch Municipal Bank, 

169, 175 
Kitson, A., 152 
Kreuger, Ivar, 101 

Latvia, 139 
Laval, M., 198 
Leaf, Dr. W,, 47 



Liberals, 122 

Liverpool, 32, 33 ; (note issue), 


Lloyd George, 50, 53, no, 138 
Lloyds Bank, 114, 120 
Loans free of interest, 47 
Loewenstein, A., 97 

MacMillan Committee, 73, 

1 10, 185, 196 

Manchester Guardian, 57, 166 
Match monopoly, 103 
May, Sir George, 197 
Money Power, the, 61, 135, 

137, 165 

Moratorium, 46, 109 
Municipal Banking, 163 seq. 
Municipal Finance, 75 

Nation, the, 57 
National Debt, 153 
National dividend, 145 
National Investment Board, 

76, 121, 122 seq. 
National Provincial Bank, 1 1 5 
Nationalization of Joint Stock 

Banks, 186 

New Capital Issues, 64 
New South Wales, 116 
New Statesman, 128 
New Zealand, 139 
Nicaragua, 8 

Norman, Sir Montagu, 135 
North Borneo, 139 
Northumberland and Durham 

Bank, 32 
Northumberland Miners Union, 

Norway, 139 

Note issues, 148, 149 

Oak Investment, 77 
Overend, Gurney & Co., 34 

Paine, W. W., 126 
Paraguay, 9, 34, 117 
Paul, Sir J., 29 
Pease, Beaumont, 119, 163 
Peru, 117 

Political power, 137, 165, 193 

Portugal, 6 

Post Office Bank, 156 

Railway speculations, 14 seq., 
30; (cooked balance-sheets), 


Raleigh, Sir W., 193 
Reparations, 62, 117 
Retail Trade Securities, 77 
Rothschilds, 9, 10, 194 
Royal British Bank, 29 
Runciman, Rt. Hon. W., 200 
Russell, Lord, 43 
Russia, 109, 1 1 8, 139, 140 

Sadleir, J., 30 

Salter, Sir A., 116, 122, 130 

San Domingo, 34 

Scottish Municipal Banks, 174 

Shaftesbury, 95 

Shaw, Hon. A., 180 

Siberian Goldfields, 38 

Silk, i, 97 

Snowden, Lord, 195 

Soddy, Professor, 49, 152 

South American Banks, 139 

South American shares, 2, 5, 

9 8 >. * * 7 

Spanish Bank, 139 

Spanish Match Loan, 106 

Speculators, i, 14, 32, 63, 
112, 123 

Spencer, Herbert, 14 

State Banks, 140 

State issue of notes, 46, 147, 149 

State lotteries, 4 

Steam power, i 

Stock Exchange war, 6 ; 
(boom of 1920), 64 ; (regu- 
lations), 122 

Strakosch, Sir H., 59 

Suez Canal, 13 

Suicides, estates of, 30 

Surplus stores, 58 

Swansea, 167 

Sweden, 108, 139, 140 

Swindon, 75 

Switzerland, 139, 164 


Times, The, 58, 74, 169 

Tipperary Bank, 3 1 

Treasury, 131 

Truck, 21 

Trustee Savings Banks, 156 

Turkey, 10, 139 

Unemployed, 197 

Uruguay, 139 

U.S.A., 6, 35, 77, 139, 196 

Venezuela, 35 
Wakefield, 75 

War Loan Sweepstakes, 87 

War Loans, 45 seq. 

Watt, James, i 

Watts, Walter, 27 

Webb, S. and B., 148, 178 

Wells, H. G., 1 80 

Wembley, 96 

White, James, 94 < 

Wigan, 1 68 

Withers, Hartley, 126 

Wolverhampton, 32 

Woodrow Wilson, 62 

Young Plan, 62, 104 






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